Michael Kane, co-founder and former CEO of Hydrogen Technology, has been sentenced to three years and nine months in prison for orchestrating a scheme to manipulate the price of the firm’s cryptocurrency and defraud investors. His accomplice, Shane Hampton, former head of financial engineering, received a sentence of two years and 11 months, marking a significant legal milestone in cryptocurrency regulation.

The U.S. Department of Justice announced the sentencing, revealing that Kane and Hampton engaged Moonwalkers Trading Ltd. to manipulate Hydro tokens on a cryptocurrency exchange. This manipulation involved approximately $7 million in wash trades and over $300 million in spoof trades, executed through automated bots.

"Hampton’s case was the first criminal jury trial in which a cryptocurrency was found to be a security," stated the DOJ, emphasizing that the defendants' actions constituted securities fraud under federal law. Hydro tokens, initially marketed as tools for developing applications on the Ethereum blockchain, were classified as investment contracts by the jury, affirming their status as securities.

The legal saga began in 2022 when the U.S. Securities and Exchange Commission (SEC) charged Hydrogen and Kane for market manipulation between 2018 and 2019. Hampton's conviction earlier this year for conspiracy to commit securities price manipulation and wire fraud underscored the severity of the charges. The SEC had previously levied fines and damages totaling $2.8 million against Hydrogen.

Kane, who pleaded guilty to securities price manipulation, wire fraud, and related offenses, acknowledged his role in the scheme. Principal Deputy Assistant Attorney General Nicole M. Argentieri commented on the case, highlighting its significance in establishing legal precedent: "For the first time in a federal criminal trial, a jury recognized cryptocurrency manipulation as securities fraud."

The sentencing of Kane and Hampton marks a pivotal moment in the regulation of cryptocurrency securities, signaling heightened scrutiny and enforcement against fraudulent practices in the digital asset market.