Ex-Hydrogen Technology Executives Sentenced for HYDRO Token Price Manipulation

In a groundbreaking case, former executives of Hydrogen Technology Corporation have been sentenced to prison for manipulating the price of the company’s HYDRO token.

At the same time, this case marks the first time a federal criminal trial has classified a cryptocurrency as a security and recognized price manipulation as securities fraud, setting a significant precedent in regulating digital assets.

Nearly Four Years Imprisonment for HYDRO Price Manipulation

A federal judge in Florida has sentenced Michael Kane, the former CEO of Hydrogen Technology Corporation, to nearly four years in prison after he pleaded guilty to securities fraud related to a crypto price manipulation scheme.

Kane received a 45-month sentence, while Shane Hampton, the former Head of Financial Engineering at Hydrogen, was sentenced to 35 months for similar offences.

This case is pivotal as the $HYDRO token was officially recognized as an investment contract-qualifying security under SEC guidelines. Principal Deputy Assistant Attorney General Nicole Argentieri stated,

“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.”

She emphasized that the sentences should serve as a warning about the DOJ’s commitment to protecting the integrity of cryptocurrency markets.

“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.”

The U.S. Securities and Exchange Commission (SEC) had previously filed a lawsuit against Kane and Hydrogen Technology, alleging that Kane used the firm’s market maker to manipulate the volume and price of the HYDRO token. This led to a New York judge ordering Kane and the company to pay $2.8 million in remedies and civil penalties in April 2023.

During the trial, it was revealed that Kane and Hampton had employed Moonwalkers Trading Ltd. to manipulate the price of Hydro tokens on a cryptocurrency exchange. This involved executing approximately $7 million in wash trades and placing millions in spoof trades using a trading bot.

US Efforts to Combat Crypto Corruptions

This criminal case is part of a broader effort by U.S. officials to regulate cryptocurrencies that are considered securities by the SEC. The commission continues to pursue civil cases against major crypto firms, including Coinbase, Ripple, Kraken, and Binance.

However, it appears the SEC has decided not to classify Ether as a security, as indicated by a recent report from Consensys.

Hydrogen Technology’s platform, which began operations in 2018, claimed to enable users to develop applications and businesses using Hydro protocols on the Ethereum blockchain.

However, the company and its executives were found to have engaged in deceptive practices to inflate the token’s market value artificially.

To shed light on the deceptive move of the case, Shane Hampton, along with his co-conspirators, used an automated trading bot to manipulate the token’s price on a US-based crypto exchange, executing $7 million in wash trades and $300 million in spoof trades between October 2018 and April 2019.

This manipulation attracted retail investors, allowing the company to sell its token holdings for $1.5 million.

The SEC had charged the company with unregistered sales and price manipulation of Hydro , which generated over $2 million for the company.

Kane pleaded guilty to conspiracy to commit securities price manipulation, conspiracy to commit wire fraud, and two counts of wire fraud. Hampton was convicted on similar charges in February.

Two other former Hydrogen executives, Andrew Chorlian and Tyler Ostern, also pleaded guilty in May 2023.