US Recognizes Crypto as a Security For the First Time: 2 Executives Sentenced

full version at beincrypto

Two executives from Hydrogen Technology were sentenced this week for their roles in a sophisticated scheme involving cryptocurrency securities fraud.

This case marks the first instance where a cryptocurrency was officially recognized as a security by a federal jury. It might set a legal precedent for how securities laws apply to digital assets, providing a clearer framework for both entrepreneurs and investors.

Hydrogen Technology Executives Will Face Prison Time

Shane Hampton, 32, from Philadelphia, received a sentence of two years and 11 months. While his co-conspirator, Michael Kane, 39, from Miami Beach, was sentenced to three years and nine months.

According to the US Department of Justice, the duo, along with other co-conspirators, used sophisticated methods to manipulate the market price of their company’s cryptocurrency, HYDRO. Their tactics included the employment of a trading bot, which generated fake orders on a major US cryptocurrency exchange, thereby inflating the HYDRO price artificially.

From October 2018 to April 2019, Kane, the CEO of Hydrogen Technology, and Hampton, the Head of Financial Engineering, executed manipulative strategies. These included approximately $7 million in “wash trades” and over $300 million in “spoof trades.”

These deceptive maneuvers successfully misled investors into buying the HYDRO token. Consequently, the conspirators made around $2 million in illicit profits over just 10 months.

Principal Deputy Assistant Attorney General Nicole M. Argentieri emphasized the severity of this case.

“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,” Argentieri said.

This case is part of a broader crackdown by US authorities on illicit cryptocurrency practices. In April, another significant sentencing occurred involving Irina Dilkinska, former legal chief of OneCoin. She faced a four-year prison term for her role in a massive pyramid scheme that exploited millions.

Moreover, Changpeng Zhao, the former CEO of Binance, also faced legal consequences this year. On June 1, he began serving a four-month prison term at the Federal Correctional Institution in Lompoc, California. Last year, Zhao pleaded guilty to failing to implement an adequate anti-money laundering program at Binance.

These developments signal increasing scrutiny and regulation of the cryptocurrency industry by US law enforcement, which aims to safeguard investors and maintain market integrity.