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DoJ Condemns HYDRO Founders for First Time Saying a Cryptocurrency Is a Security
The pair were convicted of securities fraud for manipulating HYDRO’s price with wash trades and falsified orders.
For the first time, the US Department of Justice has found that a cryptocurrency constitutes a security asset.
On June 25, the DoJ announced that it had convicted Shane Hampton and Michael Kane for manipulating the price of Hydrogen Technology’s HYDRO token. The department also found that the couple’s sales of HYDRO constituted unregistered investment contracts.
Hampton, CEO of Hydrogen Technology, and Kane, the company’s head of financial engineering, were sentenced to two years and 11 months and three years and nine months respectively.
“Shane Hampton, Michael Kane, and their co-conspirators defrauded investors by using a trading bot to manipulate the price of their company’s cryptocurrency,” said Nicole Argentieri, head of the Justice Department’s criminal division. “For the first time, a jury in a federal criminal trial found that a cryptocurrency was a security and that cryptocurrency price manipulation was securities fraud.”
The pair were found to have hired Moonwalkers Trading Limited of South Africa, a third-party company, to use an automated bot to flood HYDRO Markets with $7 million in wash trades and falsified orders worth more than $300 million of dollars.
“These manipulative trades were designed to fraudulently induce retail investors to purchase HYDRO,” the DoJ said. “Through the artificially inflated prices resulting from their manipulation efforts, Kane, Hampton, and their co-conspirators made approximately $2 million in profits from the sale of HYDRO in approximately 10 months.”
Kane pleaded guilty to charges of conspiracy to commit securities price manipulation, conspiracy to commit wire fraud and wire fraud in November 2023. Two co-conspirators, Andrew Chorlain and Tyler Ostern, pleaded guilty to the same charges in May 2023 .
Hampton was convicted of conspiracy to manipulate securities prices and conspiracy to commit wire fraud in February. Hampton’s case was the first in which a jury trial found that a crypto asset constituted a security.
Crypto Securities
While the case marks the first time the DoJ has found a crypto asset to include a security asset, the U.S. Securities and Exchange (SEC) has brought numerous enforcement actions seeking to characterize digital assets as securities in recent years.
In 2023, the SEC filed a lawsuit against major US centralized exchanges Coinbase and Kraken, alleging that the platforms facilitate trading in unregistered securities, including Cardano (ADA), Solana (SOL), Polygon (MATIC), Cosmos (ATOM ), Filecoin (FIL ), and Internet Computer (ICP).
Coinbase has vowed to fight the charges in court and has also filed a lawsuit against the SEC for failing to comply with its formal regulatory process. While Kraken is also trying to fight the SEC in court and filed a motion to dismiss in February, the judge overseeing the case recently indicated an inclination to deny movement.
In particular, as reported by the SEC backtracked on his investigation into whether Ethereum is a stock last week. The news coincides with the SEC approving 19b-4 of spot Ether ETF applicants, with the SEC expected to issue final approval of their S-1 Registration Statements before autumn.
THE price of ETH is down 5% over the past seven days, according to The Defiant’s commissions on cryptocurrency prices.
Related: Gensler Shakes Up DeFi With Tips PoS coins are securities