CRYPTO EXCHANGES
Beyond the Blockchain:
Exposing Fraud on Centralized Exchanges
Expertise
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DeFi Fraud​
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NFT Fraud ​
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Structured Finance CMBS, RMBS, CLOs, CDOs
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Centralized exchanges (CEXs) serve as crucial hubs in the crypto ecosystem, facilitating the buying, selling, and trading of digital assets. While they offer convenience and liquidity, CEXs can serve as a privacy fence for malicious actors aiming to obfuscate the movement of their funds. CEX records are not a matter of public record like a blockchain’s, and these platforms can become breeding grounds for various types of fraud, exploiting the vulnerabilities of both the exchange infrastructure and its users. When working with regulators, law enforcement, and legal experts, Integra FEC's investigative expertise continues to serve as a crucial component in uncovering and analyzing these fraudulent schemes, safeguarding investors and the integrity of the crypto market.
Common Types of Fraud on Centralized Exchanges
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Exit Scams: In this brazen scheme, the operators of a seemingly legitimate exchange suddenly vanish with users' funds. This form of embezzlement involves fabricating reasons for shutting down the platform or simply disappearing without a trace, leaving investors with no recourse to recover their assets.
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Hacking and Security Breaches: CEXs, as custodians of vast amounts of cryptocurrency, are prime targets for hackers. Security breaches can result in the theft of user funds, the manipulation of trading data, or the disruption of exchange operations.
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Insider Trading and Front Running: Employees of CEXs may exploit their privileged access to non-public information, such as upcoming listings or large orders, to engage in insider trading or front running. Front running involves placing orders ahead of a large client order to profit from the anticipated price movement. On the blockchain, front running typically occurs when a miner, who has access to information on pending transactions, places an order that would earn him a profit based on a pending trade.
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Market Manipulation: CEXs can be used as platforms for market manipulation, such as wash trading, pump-and-dump schemes, or spoofing. These manipulative tactics artificially influence the price of cryptocurrencies, often leading to significant losses for other traders.
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Tracing Sanctioned Funds: Cryptocurrencies, with their pseudonymous nature and potential for cross-border transactions, can be attractive tools for circumventing sanctions. Fraudsters may attempt to launder sanctioned funds through CEXs using shell accounts, mixing services, etc.
Integra FEC's Approach to Investigating Crypto Fraud CEXs
Integra FEC's comprehensive investigative toolkit is tailor-made for uncovering and analyzing fraud on centralized exchanges. Our multi-pronged approach combines blockchain analysis, and expert analysis to trace the flow of funds, identify suspicious patterns, and expose the actors behind fraudulent schemes. Our blockchain analysis capabilities allow us to trace movement to and from CEXs, and, when working with legal entities, build comprehensive profiles of activity within a CEX.