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 as it is the first time a federal criminal trial jury has classified a cryptocurrency as a security and determined that price manipulation of cryptocurrency constitutes securities fraud.
The court documents and trial evidence showed that Michael Kane, co-founder and CEO of Hydrogen Technology, and Shane Hampton, the company's Head of Financial Engineering, collaborated with South African firm Moonwalkers Trading Limited to manipulate the price of HYDRO. From October 2018 to April 2019, the firm used an automated trading bot to create fraudulent orders on a U.S.-based cryptocurrency exchange. The group conducted approximately $7 million in 'wash trades' and placed over $300 million in 'spoof trades' for HYDRO. These actions misled retail investors into buying HYDRO at artificially inflated prices, resulting in the group profiting around $2 million over ten months.
Nicole M. Argentieri, Principal Deputy Assistant Attorney General and head of the Justice Department’s Criminal Division, stated that Kane, Hampton, and their co-conspirators used a trading bot to manipulate the price of their company's cryptocurrency, thereby defrauding investors. 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. Hampton was convicted by a federal jury 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, thus classifying the token as a security under federal securities law. This trial was the first criminal jury trial in which a cryptocurrency was deemed a security. Two additional co-conspirators, Andrew Chorlian 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 sentenced. Shane Hampton, 32, of Philadelphia, received a sentence of two years and 11 months in prison. His co-conspirator, Michael Kane, 39, of Miami Beach, Florida, was sentenced to three years and nine months in prison.