In a landmark case brought by the U.S. Department of Justice (DOJ), two individuals have been convicted of manipulating the price of a crypto asset considered a “security” and conspiring to defraud investors through the HYDRO cryptocurrency from Hydrogen Technology.
The federal jury’s verdict resulted in significant prison terms for the defendants and reached a crucial legal milestone. For the first time in a federal criminal trial, the jury confirmed that a cryptocurrency qualifies as a security and that manipulating its price constitutes securities fraud.
Allegations of manipulation scheme
According to court documents and evidence from the lawsuit, Kane, the co-founder and CEO of Hydrogen Technology, and Hampton, the company’s head of Financial Engineering, engaged the services of Moonwalkers Trading Limited, based in South Africa.
The third-party company was instructed to manipulate the price of HYDRO on an undisclosed US exchange. digital asset exchange using a trading bot. From October 2018 to April 2019, the defendants and their co-conspirators allegedly executed approximately $7 million in “wash trades” and placed more than $300 million in “spoof trades” for HYDRO.
These “manipulative tactics,” which included flooding the market with false and fraudulent orders, were designed to trick retail investors into purchasing HYDRO at “artificially inflated prices,” according to the Justice Department.
The indictment released Tuesday also alleges that the defendants and their co-conspirators earned approximately $2 million from the sale from HYDRO for ten months.
Shane Hampton received a prison sentence of two years and eleven months, while his accomplice, Michael Kane Florida, was sentenced to three years and nine months in prison.
Turning point in the crypto market?
Deputy Assistant Attorney General Nicole M. Argentieri, chief of the Justice Department’s Criminal Division, emphasized the importance of this case. She stated:
In this case, for the first time, a jury in a federal criminal trial ruled that a cryptocurrency was a security and that manipulating cryptocurrency prices constituted securities fraud. This prosecution and the penalties imposed today should serve as a warning: the Criminal Division will not hesitate to use all tools at its disposal, including the federal securities laws, to protect the integrity of the cryptocurrency markets.
The guilty plea from co-conspirators Andrew Chorlian and Tyler Ostern, who admitted as much accusations of conspiracy in May 2023, further strengthens the case against the defendants. Chorlian and Ostern were previously convicted of their involvement in the conspiracy to commit securities manipulation and bank fraud.
Ultimately, this groundbreaking judgment and the jury’s recognition of cryptocurrency as a security tool marks a major turning point moving forward legal landscape surrounding digital assets.
The verdict sends a clear message that manipulation of cryptocurrency prices will have 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 is key to innovation and growth.
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