A former finance executive for a tech startup that lost US$35 million of the company’s capital on crypto investments has been sentenced to two years in prison after being convicted on fraud charges.
Last November, following a nine-day trial, a jury convicted Nevin Shetty — former CFO of an e-commerce startup in Seattle, Fabric Inc. — of four counts of wire fraud in connection with a scheme that diverted the company’s capital to a crypto platform that he controlled on the side, HighTower Treasury.
According to court filings, the company, including Shetty, drafted an investment policy that called for its startup funding to be kept in money market instruments and other conservative holdings, in order to preserve capital to grow its business and finance its daily liquidity needs.
Yet, in early 2022, Shetty directed US$35 million of the company’s money to HighTower Treasury — which, in April 2022, used the money to invest in decentralized finance lending protocols that promised returns of at least 20%.
Initially, the investment was successful, but by mid-May 2022, the value of the investments had nearly dropped to zero, as a result of the crash of the stablecoin TerraUSD, and the crypto asset TerraLuna.
After the failed investment was revealed to a couple of colleagues at the software firm, Shetty was fired and later charged with fraud.
In defence filings, Shetty argued that the government was seeking to criminalize a poor business decision — an investment that failed — rather than fraudulent conduct.
However, a jury disagreed, and he’s now been sentenced to two years in prison, followed by three years of supervised release, and ordered to pay US$35 million in restitution.
“In less than one month, Mr. Shetty stole $35 million from his employer that he knew was meant to be kept in conservative investments to help grow the company. Instead, he lost almost all of it through risky cryptocurrency investments,” said Jonathan Dean, assistant special agent in charge of the FBI’s Seattle office, in a release.
“As the company’s CFO, Mr. Shetty was not only part of the investment planning but also had the access and trust to move the money,” he added.