Two executives from Hydrogen Technology, Michael Kane and Shane Hampton, have been sentenced to jail for their involvement in a price manipulation scandal that defrauded investors. This case marks the first time a federal criminal trial has determined that a cryptocurrency, in this instance the HYDRO token, was considered a security and that manipulating its price constituted securities fraud, according to the U.S. Department of Justice.
CEO Michael Kane, aged 39, received a sentence of three years and nine months, while Shane Hampton, aged 32 and the head of financial engineering at the company, was sentenced to two years and 11 months. The executives collaborated with a South African company named Moonwalkers Trading to manipulate the price of HYDRO on a U.S.-based crypto exchange. They utilized a bot to carry out approximately $7 million in wash trades and $300 million in spoof trades between October 2018 and April 2019. These actions allowed them to generate $2 million in profits by selling HYDRO at inflated prices.
Kane, hailing from Miami Beach, admitted guilt in November 2023 to wire fraud and securities price manipulation. On the other hand, Hampton, from Philadelphia, was convicted on February 7 of conspiracy to commit securities price manipulation and wire fraud. Nicole M. Argentieri, head of the Justice Department’s Criminal Division, highlighted the significance of this case by stating, “In this case, for the first time, a jury in a federal criminal trial found that a cryptocurrency was a security and that manipulating cryptocurrency prices was securities fraud.”
In a related development, Hydrogen Technology and Kane were previously fined nearly $2.8 million and $260,206, respectively, by the U.S. District Court of the Southern District of New York for violating securities regulations in a case initiated by the Securities and Exchange Commission. Additionally, two other individuals involved in the scheme, Andrew Chorlian and Tyler Ostern, pleaded guilty in May 2023 to charges of securities price manipulation and wire fraud. They have already received their sentencing, as mentioned in the press release.
This case serves as a cautionary tale about the consequences of engaging in fraudulent activities within the cryptocurrency space. The legal ramifications are significant, and regulators are taking a firm stance against individuals and entities that seek to manipulate markets for personal gain. Investors should remain vigilant and conduct thorough due diligence before participating in any cryptocurrency transactions to avoid falling victim to such schemes in the future.