Crypto token is considered a security for first time ever in multi-million fraud trial

• Jury finds two men guilty of manipulating security prices using trading bots in a multimillion-dollar fraud trial. 
• Shane Hampton and Michael Kane were sentenced for manipulating the price of HYDRO token, a security in this case. 
• The US SEC had previously declared several cryptocurrencies as securities in its lawsuit against Coinbase. 

The US Securities and Exchange Commission (SEC) listed several cryptocurrencies as securities in its lawsuit against Coinbase in 2023. However, for the first time ever, a crypto token – Hydrogen Technology’s HYDRO – was labeled as a security in a multi-million dollar fraud trial. 

A notice from the US Department of Justice (DoJ) on Tuesday shows that two men were sentenced to prison for manipulating the price of the security in question (HYDRO). The charges were the manipulation of the price of HYDRO and scheming to defraud investors in connection with the securities purchase. 

Two men tried for securities fraud in connection with HYDRO 

Shane Hampton and Michael Kane of Hydrogen Technology were tried and sentenced to prison in a multi-million dollar securities fraud case. For the first time, a crypto token, HYDRO, was found to be a security by a jury in a federal criminal trial. 

Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division, said: “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 trial and its outcome are important to crypto traders since the Securities and Exchange Commission (SEC) is embroiled in a legal battle with Ripple, where the regulator is likely to appeal to the Second Circuit on the partial victory. Judge Analisa Torres ruled in 2023 that XRP is not a security since its secondary market sales do not meet the Howey Test requirement. However, this ruling has not been accepted as a precedent in other crypto-related cases in the past year. 

Further, the US SEC filed a lawsuit against Coinbase in 2023, listing several crypto tokens, including Binance Coin (BNB), Solana (SOL), Toncoin (TON), Cardano (ADA) and Tron (TRX) among others. 

SEC Charges against Coinbase 

The SEC is yet to comment on whether Ethereum (ETH) is a security. The altcoin has been identified as a commodity by the US Commodity and Futures Trading Commission. While the SEC dropped its investigation into Ether, the Gary Gensler-led regulatory agency did not clarify its stance on whether Ether is a security.