Jury in the US recognized cryptocurrency as a security for the first time in the HYDRO token fraud case

What’s new? Former senior executives at fintech company Hydrogen Technology Corporation have received prison sentences for HYDRO cryptocurrency fraud. A Florida court sentenced the company’s co-founder and former CEO Michael Kane to 45 months in prison, and former head of financial engineering Shane Hampton received 35 months in prison.

DOJ statement

What else is known? According to the conclusion of the US Department of Justice, the defendants and their accomplices defrauded investors by using a trading bot to manipulate the rate of cryptocurrency of their own company. It is noted that in the framework of this case, the jury for the first time recognized the cryptocurrency as a security, and the manipulation of its price, as securities fraud.

The prosecutor’s office said it “will not hesitate to use all tools at its disposal — including the federal securities laws — to protect the integrity of cryptocurrency markets.”

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According to the case file, Kane and Hampton hired a third-party South African firm, Moonwalkers Trading Limited, to manipulate the price of HYDRO on an unnamed crypto exchange headquartered in the United States. Between October 2018 and April 2019, they used a trading bot to flood the market with fake orders.

Together with accomplices, they conducted sham transactions to artificially inflate trading volume (wash-trading) totaling $7 million and placed spoof trades totaling $300 million.

With these manipulations, they encouraged retail investors to buy HYDRO. As a result, artificially inflated prices allowed Kane, Hampton, and accomplices to earn about $2 million from the sale of HYDRO in 10 months.

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The Securities and Exchange Commission (SEC) filed suit against Kane and Hydrogen Technology for the HYDRO token fraud in September 2022. In April 2023, the court ordered Kane and the firm to pay $2,8 million in damages and civil penalties. In November 2023, Kane pleaded guilty to conspiracy to manipulate securities prices and commit fraud.

On February 7 of this year, a jury found Hampton guilty on similar charges. They unanimously concluded that the defendants’ sales of HYDRO constituted investment contracts, making the token a security under federal law. The Hampton case was the first criminal jury trial in which cryptocurrency was found to be a security.

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Co-defendants Andrew Chorlian and Tyler Ostern pleaded guilty to similar charges in May 2023 and have already been convicted.