Two men sentenced in first federal trial classifying cryptocurrency as securities
According to CryptoPotato, two individuals have been sentenced for their roles in a scheme to manipulate the price of Hydrogen Technology's cryptocurrency, HYDRO, and defraud investors. This case is significant because it is the first time a federal criminal jury has classified a cryptocurrency as a security and determined that manipulation of cryptocurrency prices constitutes securities fraud.
Court documents and trial evidence showed that Michael Caine, co-founder and CEO of Hydrogen Technology, and Shane Hampton, the company's head of financial engineering, collaborated with South African company Moonwalkers Trading Limited to manipulate the price of HYDRO. From October 2018 to April 2019, the company used an automated trading bot to create fraudulent orders at a US-based cryptocurrency exchange. The group conducted approximately $7 million in “wash trades” and allocated more than $300 million in “spoof trades” for HYDRO. These actions misled retail investors into purchasing HYDRO at artificially inflated prices, resulting in the group earning approximately $2 million over a ten-month period.
Kane, Hampton, and their co-conspirators used a trading bot to manipulate the price of their company's cryptocurrency, thereby defrauding investors, said Nicole M. Argentieri, Principal Deputy Assistant Attorney General and Chief of the Justice Department's Criminal Division. Kane pleaded guilty in November 2023 to one count of conspiracy to commit securities price manipulation, one count of conspiracy to commit wire fraud, and two counts of wire fraud. A federal jury convicted Hampton on February 7 of one count of conspiracy to commit securities price manipulation and one count of conspiracy to commit wire fraud.
The jury unanimously agreed that the defendants' sales of HYDRO were investment contracts, and therefore the token was classified as a security under federal securities law. This trial was the first criminal jury trial in which cryptocurrency was considered collateral. Two other co-conspirators, Andrew Corlian and Tyler Ostern, pleaded guilty in May 2023 to one count of conspiracy to commit securities price manipulation and wire fraud. Both have been previously convicted. Shane Hampton, 32, of Philadelphia, was sentenced to two years and 11 months in prison. His accomplice, Michael Kane (39 years old), from Miami Beach, Florida, was sentenced to three years and nine months in prison.
