Crypto Fraudsters Still in the Game: A Review of Several Cases
Two former executives involved in a multimillion-dollar cryptocurrency fraud scheme have been jailed by the US Department of Justice (DOJ). Michael Kane, 39, from Florida, and Shane Hampton, 32, from Philadelphia, wer sentenced to three years and nine months and eleven months in jail, respectively. Both men held senior management positions at Hydrogen Technology Corporation, with Kane serving as the CEO and Hampton as the head of the financial engineering division until their arrest for fraud in 2022.
The scheme involved market manipulation that deceived investors who trusted the company’s vision and invested in its cryptocurrency, HYDRO, resulting in millions of dollars in losses. The two men collaborated with Moonwalkers Trading Limited, a South African cryptocurrency firm, to manipulate the price of HYDRO on an unnamed US-registered cryptocurrency exchange between October 2018 and April 2019.
Kane and Hampton used an automated trading bot to generate fictitious orders and flood the market with false transactions, aiming to artificially inflate HYDRO’s value. The bot facilitated approximately $300 million in “spoof trades” and over $7 million in “wash trades” for HYDRO. These fraudulent activities tricked regular investors into purchasing HYDRO at inflated prices, allowing Kane and Hampton to profit around $2 million over ten months.
Legal Actions and Convictions
The US Securities and Exchange Commission (SEC) uncovered the fraudulent practices in 2022 and filed a lawsuit against the company’s former executives. Kane pleaded guilty in November 2023 to multiple charges, including conspiracy to commit securities price manipulation, conspiracy to commit wire fraud, and two counts of wire fraud.
A New York judge ordered Kane and his company to pay $2.8 million in remedies and civil penalties in April 2023, prior to his guilty plea.
Earlier this year, a federal jury found Hampton guilty of conspiring to commit wire and securities fraud. The jury determined that the sales of HYDRO constituted investment contracts, classifying the token as a security under US law.
This case marks the first criminal jury trial where a cryptocurrency, HYDRO, was classified as a security. Principal Deputy Assistant Attorney General Nicole Argentieri emphasized the significance of this ruling, stating, “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.”
Sam Bankman-Fried: The Epitom of Crypto Fraud
Also back in March Sam Bankman-Fried, the former billionaire behind the now-defunct FTX cryptocurrency exchange, was sentenced to 25 years in federal prison for his role in one of the largest financial frauds in US history. The sentence, delivered by US District Judge Lewis Kaplan in Manhattan, is significantly less than the 40–50 years prosecutors had requested.
During the court hearing, Judge Kaplan dismissed Bankman-Fried’s claims that FTX clients did not suffer financial losses and accused him of fabricating testimony throughout his trial. Bankman-Fried was found guilty on November 2023 of seven charges of fraud and conspiracy related to the 2022 collapse of FTX, which saw $8 billion stolen from users.
Kaplan emphasized Bankman-Fried’s awareness of his wrongdoing, stating, “He knew it was wrong. He understood it was illegal. He feels awful about the poor wager he placed on the possibility of being discovered. But, as is his prerogative, he will not acknowledge anything.”
The judge further justified the sentence by highlighting the potential risk Bankman-Fried poses for future harm, noting, “There is a risk that this man will be in a position to do something very bad in the future. And the risk is by no means insignificant.”
Bankman-Fried’s Response and Apology
Before the sentence was imposed, Bankman-Fried stood with his hands clasped and expressed regret for his actions. “Many people experience extreme disappointment. They were quite disappointed. I apologize for it as well. He apologized for all that transpired at every turn,” he said. “I’m very sure my productive life is finished. It ended before my arrest, so it has been a while.”
According to Al Jazeera’s Kristen Saloomey, who reported from New York, Bankman-Fried faced a potential sentence of up to 110 years for his crimes. The 25-year sentence, while substantial, is significantly less severe than what was initially sought by the prosecution.
“The judge took a very strong stance but also showed some flexibility… perhaps based on the arguments made by Bankman-Fried’s lawyers and his family that he had always intended to do good,” Saloomey reported, noting the gravity of the crime.
Bankman-Fried had positioned himself as an advocate of effective altruism, promoting the idea of using one’s wealth to benefit others through charitable donations. Despite this, prosecutors argued that he had misappropriated consumer funds for years while maintaining a reputable public image.
“Over a number of years, the defendant victimized tens of thousands of individuals and businesses on numerous continents,” prosecutors stated in a court document. “He stole money from customers who entrusted it to him.”
Couple Convicted of £5.7 Million Bitcoin Fraud
Not only the big industry players have been convicted. James Heppel, 42, of Staverton, Wiltshire, and Jake Lee, 38, of Charlcombe, Bath, were convicted and sentenced for orchestrating a large-scale cryptocurrency fraud scheme that netted over £5.7 million from victims worldwide. The pair pleaded guilty to three charges of conspiracy to commit fraud, targeting 55 victims across 26 countries, including 11 in the UK.
On May 3, Bristol Crown Court sentenced Jake Lee to four years in jail and James Heppel to fifteen months. The court also confiscated various assets from the duo, including £64,000 worth of bitcoin, £835,000 in cash, three automobiles, and a poster of Banksy’s 2003 piece “Bomb Love.”
The fraudsters impersonated Blockchain.com, a cryptocurrency exchange, to access victims’ Bitcoin wallets, stealing their funds and login credentials. Among the seized items was a bag containing £551,000 that Lee surrendered willingly in January.
The investigation began when Lee was arrested by Avon and Somerset Police on suspicion of money laundering. Authorities discovered three digital devices, £24,000 in cash, and three laminated Bitcoin wallet recovery seeds, which are lists of phrases used to restore a lost Bitcoin wallet.
Lee was issued a confiscation order amounting to approximately £1 million, the proceeds of which will be used to compensate victims. Heppel is facing similar proceedings, with a risk of extended jail time if he fails to surrender the required funds and assets.
Det Supt Matt Brain of SWROCU’s Regional Cyber Crime Unit remarked on the investigation’s complexity, noting the effort to identify victims and map out the fraudulent network. Pamela Jain, a specialist prosecutor of the Crown Prosecution Service’s Serious Economic Organised Crime International Directorate, highlighted the extensive and time-consuming nature of the prosecution, which involved collaboration with numerous victims and prosecuting authorities globally.
SWROCU’s analysis of Lee’s devices revealed his central role in a sophisticated domain spoofing fraud. Additionally, authorities are investigating a related cryptocurrency fraud involving a Wiltshire victim who lost £11,000 worth of Bitcoin from his Blockchain wallet.
Another Woman Sentenced in a £3 billion Bitcoin fraud
In another incident, a London court condemned Singaporean Wen Jian to six years and eight months in jail for her involvement in the laundering of Bitcoin (BTC) connected to an astounding $6.4 billion Chinese scam.
The case, in which the UK authorities seized almost 61,000 BTC, has highlighted the increasing use of cryptocurrencies in international financial crimes.
Prosecutors claim that a different lady, whom Wen assumed to be independently rich, was behind the $6.4 billion scam. This person is accused of using fake wealth schemes to scam almost 130,000 Chinese investors between 2014 and 2017. The scam’s mastermind fled to Britain when Chinese authorities began looking into it in 2017.
Wen’s job in the scam was to assist hide the source of the stolen funds by exchanging them for Bitcoin, removing them from China, and then repurchasing them for real estate and cash. The prosecution contended that Wen ought to have known the money was acquired unlawfully, but she insisted on her innocence the entire time.
Wallets holding more than 61,000 Bitcoin were taken by British police as part of their investigation, making it one of the biggest cryptocurrency seizures by law enforcement globally. When police first obtained access to the tokens in 2021, their estimated value was £1.4 billion; since then, their value has increased to nearly £3 billion.
Wen Jian, who was accused of assisting in a $6.4 billion bitcoin laundering fraud, was jailed for seven years after a trial in a London court. Prosecutors said she helped hide the source of money allegedly stolen from nearly 130,000 Chinese investors https://t.co/ynGPKX5GBZ
— Reuters Legal (@ReutersLegal) May 25, 2024
Mark Harries, the defense attorney for Wendss throughout the trial and sentencing, presented a picture of a lady who had been duped by a ruthless criminal organization. Harries said that Wen was just another victim of a “expert criminal supervillain” who had taken advantage of her reliability and dumped her when she was no longer needed, rather than a voluntary participant in the multibillion dollar scam and subsequent bitcoin laundering operation.
At Southwark Crown Court, the ladies were charged on three charges of money laundering. She was found guilty on one count in March by a jury that was unable to decide on the other two.
Judge Sally-Ann Hales stated at the sentencing hearing that there was no proof pointing to Wen’s role in the underlying scam. The judge, however, declared that there was “no doubt” in her mind that Wen was handling illicit items.
Wen, who insisted that she was attempting to provide her son a better life, was finally found guilty of one count of money laundering and given a six-year, eight-month jail term.
The lady found guilty in this instance went on to become a classic “money mule,” someone employed to launder money obtained unlawfully, thereby taking on some of the accountability for this enterprise. Two weeks ago, the US CFTC issued a warning on this kind of fraud.