Key Insights
- Hydrogen Technologies executives sentenced to prison for manipulating the price of their HYDRO cryptocurrency through wash trades and spoofing.
- Jury ruled HYDRO token an unregistered security, marking the first federal criminal trial to classify a cryptocurrency as such and deem price manipulation as securities fraud.
- The case, resulting in $2 million profit for the perpetrators, sets a legal precedent for treating cryptocurrencies under securities laws.
LONDON/NEW YORK (MarketsXplora) – Two executives of Hydrogen Technologies have been sentenced to prison for manipulating the price of their company’s cryptocurrency, HYDRO, in a landmark case that sets a precedent for treating digital assets as securities.
Michael Kane, co-founder and CEO of Hydrogen Technologies, received a sentence of three years and nine months, while Shane Hampton, the Head of Financial Engineering, was handed two years and eleven months, the U.S. Department of Justice announced on Tuesday.
The sentencing follows Kane’s guilty plea last November to one count of conspiracy to commit securities price manipulation, one count of conspiracy to commit wire fraud, and two counts of wire fraud. Hampton was convicted in February on charges of conspiracy to commit securities price manipulation and wire fraud.
According to court documents, Kane and Hampton engaged South Africa-based Moonwalkers Trading to manipulate HYDRO’s price on a U.S.-based cryptocurrency exchange between October 2018 and April 2019. The manipulation involved an automated trading bot that executed approximately $7 million in “wash trades” and placed $300 million in “spoof trades.”
“Shane Hampton, Michael Kane, and their co-conspirators defrauded investors by using a trading bot to manipulate the price of their company’s cryptocurrency,” said Nicole Argentieri, Principal Deputy Assistant Attorney General.
The artificial inflation of HYDRO’s price induced retail traders to purchase the token, allowing Kane, Hampton, and their associates to profit approximately $2 million from token sales over a 10-month period.
In a significant development for the cryptocurrency industry, the jury in this case determined that HYDRO qualifies as an investment contract, effectively classifying it as an unregistered security.
“This prosecution and the sentences imposed today should serve as a warning: The Criminal Division will not hesitate to use all tools at its disposal—including the federal securities laws—to protect the integrity of cryptocurrency markets,” Argentieri added.
The case marks the first instance where a jury in a federal criminal trial has classified a cryptocurrency as a security and deemed the manipulation of cryptocurrency prices as securities fraud. This verdict could have far-reaching implications for the regulation and prosecution of cryptocurrency-related crimes in the United States.