Two men have been jailed for manipulating the price of a security and scheming to defraud investors over the purchase of Hydrogen Technology’s cryptocurrency, HYDRO.
Shane Hampton, 32, of Philadelphia, was jailed for two years and 11 months.
His co-conspirator, Michael Kane, 39, of Miami Beach, Florida, was sentenced to three years and nine months.
Court documents and evidence heard in the trial revealed Kane was the co-founder and CEO of Hydrogen Technology.
Hampton was the Head of Financial Engineering at the company.
The two hired an outside firm, Moonwalkers Trading Limited of South Africa.
The company manipulated the price of HYDRO on a cryptocurrency exchange headquartered in the United States.
They did this by using an automated trading application or “bot” to flood the market with fake and fraudulent orders.
The fraud happened between October 2018 to April 2019.
Kane, Hampton, and their co-conspirators executed approximately $7 million in “wash trades.”
They also placed over $300 million in “spoof trades” for HYDRO through the bot.
The trades were designed to fraudulently induce retail investors to purchase HYDRO.
“Shane Hampton, Michael Kane, and their co-conspirators defrauded investors by using a trading bot to manipulate the price of their company’s cryptocurrency”
Through the artificially inflated prices, Kane, Hampton, and their co-conspirators made approximately $2 million in profits.
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Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division, said: “Shane Hampton, Michael Kane, and their co-conspirators defrauded investors by using a trading bot to manipulate the price of their company’s cryptocurrency.
“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.
“This prosecution and the sentences 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 cryptocurrency markets.”
Kane admitted:
- One count of conspiracy to commit securities price manipulation
- one count of conspiracy to commit wire fraud
- two counts of wire fraud
Hampton was convicted by a federal jury in February of:
- One count of conspiracy to commit securities price manipulation
- One count of conspiracy to commit wire fraud
The jury unanimously found the defendants’ sales of HYDRO constituted investment contracts.
This made the token a security under federal securities law.
Hampton’s case was the first criminal jury trial in which a cryptocurrency was found to be a security.
Two other co-conspirators, Andrew Chorlian and Tyler Ostern, pleaded guilty in May 2023.
Both admitted one count of conspiracy to commit securities price manipulation and wire fraud.
The FBI Miami Field Office investigated the case.
Assistant Chief Scott Armstrong and Trial Attorney Andrew Jaco of the Criminal Division’s Fraud Section prosecuted the case.
