In a landmark case, two executives executives of Hydrogen Technology Corporation have been sentenced for orchestrating a massive crypto securities fraud. This unprecedented case marks the first time a federal jury has classified a cryptocurrency as a security and determined that manipulating its price constitutes securities fraud.
Hydrogen Executives Sentenced for Crypto Fraud
On June 25, a federal judge in Florida handed down prison sentences to Michael Kane, the CEO of Hydrogen Technology Corporation, and Shane Hampton, the company’s head of financial engineering. Kane received a sentence of three years and nine months, while Hampton was sentenced to two years and eleven months. The sentencing follows their conviction for using fraudulent means to manipulate the price of HYDRO, a token issued by their company.
Fraudulent Scheme Unveiled
According to the Department of Justice, Kane and Hampton employed a trading bot to artificially inflate the price of HYDRO. They enlisted Moonwalkers Trading Limited, a South African firm, to execute this scheme on a U.S.-based cryptocurrency exchange. From October 2018 to April 2019, the bot placed a flood of fake and fraudulent orders, distorting the market for HYDRO.
Massive Financial Impact
Court documents reveal the extent of the fraud. Kane, Hampton, and their collaborators executed approximately $7 million in “wash trades” and over $300 million in “spoof trades” using the trading bot. These manipulative practices allowed them to pocket around $2 million in illicit profits over a span of ten months.
SEC Charges
In addition to the criminal charges, the U.S. Securities and Exchange Commission (SEC) has taken civil action against the perpetrators. In September 2022, the SEC charged Michael Kane and Tyler Ostern, CEO of Moonwalkers Trading Limited, for their roles in the illegal offer and sale of unregistered crypto asset securities.