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  • J Huang and S Pettigrove

Hydro execs damned over token price manipulation

Two executives of Hydro Technology - the company behind the cryptocurrency HYDRO - have been sentenced to jail for defrauding investors by manipulating the price of the token. Michael Kane, the CEO of Hydro Technology, was sentenced to 3 years and 9 months, while Shane Hampton, the company's Head of Financial Engineering (being his official title), was sentenced to 2 years and 11 months.

The US Department of Justice (DOJ) brought the charges against the two Hydro executives, alleging that they orchestrated a scheme to manipulate the price of HYDRO. It was alleged that, from October 2018 to April 2019, the two executives and their co-conspirators engaged Moonwalkers Trading Limited to use an automated trading system, or "bot" to execute fraudulent trades.

In this process, they carried out approximately $7 million in wash trades and over $300 million in spoof trades on a cryptocurrency exchange in the US - flooding the market with fake and fraudulent orders. These trades aimed to create a misleading market for HYDRO, enticing retail investors to purchase the cryptocurrency, which allowed the accused and their associates to sell their holdings for over $1.5 million.

Kane pleaded guilty in November 2023 to several criminal counts including conspiracy to commit securities price manipulation, conspiracy to commit wire fraud and wire fraud. As for Hampton, in February 2024, a federal jury in the Southern District of Florida found him guilty on counts of securities prices manipulation and conspiracy to commit wire fraud.

According to the DOJ, the case represents 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.

The DOJ added:

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.

This case and other similar cases, such as the complaints involving the Mango Markets exploit, show that US regulators are going beyond using general fraud charges to prosecute market misconduct in relation to cryptocurrencies, increasingly pursuing securities fraud and market manipulation charges, even if the latter requires satisfying the threshold question of the underlying cryptocurrency being a security.

Written by J Huang and S Pettigrove


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