An indictment was unsealed on April 24th in Miami charging two U.S. citizens and a South African national with conspiring to manipulate the market for HYDRO, a virtual asset created by the Hydrogen Technology Corporation. Two other individuals were also charged in separate charging documents for their roles in the scheme filed in the Southern District of Florida.
Back in September 2022, the SEC filed a complaint against HYDRO. SEC Press Release On April 20, 2023, the SEC settled with HYDRO. https://cointelegraph.com/news/sec-wins-2-8m-in-suit-over-alleged-crypto-token-price-manipulation. On April 24, 2023, the DOJ returned an indictment charging defendant’s with conspiracy to commit wire fraud as well as conspiracy to commit securities price manipulation. Crypto Criminal Defense Lawyer Blog
Title 15 of United States Code § 78(a) makes it unlawful for any person to “directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange” relating to “the purchase or sale of a security.”
According to the DOJ’s press release, from around June 2018 through April 2019, Michael Kane, 38, of Miami; Shane Hampton, 31, of Philadelphia; and George Wolvaardt, 38, of Johannesburg, South Africa, allegedly conspired to manipulate the market for HYDRO, a token on the Ethereum blockchain platform, and defraud market participants by creating the false appearance of supply and demand for HYDRO to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded. The defendants allegedly used a trading bot to place thousands of orders that they did not intend to execute, or “spoof orders,” and thousands of orders where the bot bought and sold tokens to itself through the same account, or “wash trades.” The co-conspirators allegedly reaped $2 million in profit through their sales of HYDRO at artificially inflated prices.
DOJ Press Release
Although I have not yet obtained a copy of the indictment, it would appear from the DOJ’s press release that they allege that the hydro ERC-20 digital asset token is a “security” and that defendants fraudulently manipulated the token’s price. This would be the first-of-its-kind criminal prosecution alleging that a digital asset is a security. Stay tuned for more on this one.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.