Federal Jury Makes History By Ruling Crypto Fraud As ‘Security Fraud’

In a landmark case brought by the US Department of Justice (DOJ), two individuals were convicted of manipulating the price of a crypto-asset considered a “security” and allegedly conspiring to defraud investors by buying Hydrogen Technology’s HYDRO cryptocurrency.

The judge’s decision resulted in the defendants being sentenced to prison again established an important legal milestone. For the first time in a federal criminal case, a judge confirmed that cryptocurrency qualifies as collateral and that manipulating its price constitutes securities fraud.

Alleged Fraud Scheme

According to court documents and evidence, Kane, who is the founder and CEO of Hydrogen Technology, and Hampton, who is the Head of Financial Engineering at this company, work with Moonwalkers Trading Limited, based in South Africa.

A third party was tasked with manipulating the price of HYDRO on an undisclosed basis based in the US. digital asset exchange using a trading bot. From October 2018 to April 2019, the defendants and their associates are alleged to have withdrawn approximately $7 million in “laundry operations” and placed more than $300 million in “fake trades” for HYDRO.

These “deceptive tactics,” including flooding the market with fake and bogus orders, were designed to trick retail investors into buying HYDRO at “fraudulently inflated prices,” according to the DOJ.

The lawsuit filed on Tuesday also alleges that the defendants and their associates made an estimated $2 million sale of HYDRO for more than ten months.

Shane Hampton received a sentence of two years and 11 months in prison, while his accomplice, Michael Kane Florida, was sentenced to three years and nine months in prison.

An Opportunity for Change in the Crypto Market?

Deputy Assistant Attorney General Nicole M. Argentieri, who heads the Criminal Division of the Department of Justice, emphasized the importance of this case. He said:

In this case, for the first time, a judge in a federal criminal case found that cryptocurrency is a security and that manipulating cryptocurrency prices is securities fraud. These prosecutions and the sentences imposed today should be a warning: the Criminal Division will not hesitate to use all the tools at our disposal, including federal securities laws, to protect the integrity of the cryptocurrency markets.

The trial of co-conspirators Andrew Chorlian and Tyler Ostern, who pleaded not guilty conspiracy charges in May 2023, continues to strengthen the case against the defendants. Chorlian and Ostern were previously convicted of their involvement in the conspiracy to commit securities fraud and wire fraud.

Ultimately, this landmark decision and the judge’s recognition of cryptocurrency as a security token is a critical turning point in finance. legal status surrounding digital goods.

The decision sends a clear message that manipulation of cryptocurrency prices will be met with serious consequences. As the cryptocurrency market continues to evolve, this case serves as a reminder of the importance of new and clear rules to regulate the market, which are key to innovation and growth.

Featured image from DALL-E, chart from TradingView.com