A U.S. federal district court has handed down prison terms in one of the first criminal cases where cryptoassets were deemed securities and market manipulation in the sector was found to be securities fraud.
Following convictions on fraud and conspiracy charges, Michael Kane and Shane Hampton were sentenced to 45 months and 35 months in prison, respectively.
Last year, Kane pled guilty to one count of conspiracy to commit securities price manipulation, one count of conspiracy to commit wire fraud and two counts of wire fraud. Earlier this year, Hampton was convicted of one count of conspiracy to manipulate securities prices and one count of wire fraud conspiracy by a federal jury in the Southern District of Florida.
“In this case, for the first time, a jury in a federal criminal trial found that a cryptocurrency was a security and that manipulating cryptocurrency prices was securities fraud,” said Nicole Argentieri, principal deputy assistant attorney general and head of the U.S. Department of Justice’s (DoJ) criminal division, in a release.
According to the evidence presented at trial, Kane was co-founder and CEO at Hydrogen Technology, a crypto firm, and Hampton was its head of financial engineering. Hydrogen hired Moonwalkers Trading Ltd. to manipulate the price of its proprietary crypto token, Hydro, using an automated bot to flood a U.S. crypto exchange with fake orders for the token.
The bot placed more than US$300 million in spoof trades, and approximately US$7 million in wash trades were executed, U.S. authorities alleged.
“These manipulative trades were designed to, and did, fraudulently induce retail investors to purchase Hydro,” the DoJ said, adding that the scheme’s participants made approximately US$2 million in illicit profits from the market manipulation.
In 2023, the U.S. Securities and Exchange Commission (SEC) also secured court judgments against Kane, his company, and the CEO of Moonwalkers Trading, Tyler Ostern, in connection to the scheme. The judgments required them to pay almost US$3 million in disgorgement and penalties, and imposed other sanctions.
Ostern also previously pled guilty to conspiracy charges in the case, and was sentenced to two years in prison.