A Washington state man has been sentenced to two years in federal prison after secretly diverting $35 million from his employer to fund a personal decentralized finance (DeFi) venture that ultimately collapsed during the 2022 crypto market crash.
Key Takeaways
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A former Washington CFO was sentenced to two years in prison after diverting $35 million in company funds into a risky DeFi investment scheme.
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The crypto strategy unraveled during the 2022 market crash triggered by the collapse of the Terra ecosystem.
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The losses severely damaged the company, forcing layoffs and nearly pushing the business to shut down.
Nevin Shetty, 42, was convicted of wire fraud in November after prosecutors showed he secretly transferred company funds into a crypto investment strategy connected to his side venture, HighTower Treasury.
The funds belonged to a private software company where Shetty worked as chief financial officer.
Prosecutors Say CFO Moved Funds After Learning His Job Was Ending
According to the U.S. Department of Justice, Shetty had previously drafted a conservative investment policy that strictly limited how the company’s money could be used.
But in April 2022, after learning that his position would be terminated due to performance concerns, prosecutors say he transferred tens of millions of dollars out of the company’s accounts.
The money was routed to HighTower Treasury, where Shetty and a business partner invested heavily in DeFi lending platforms that promised annual returns of 20% or more.
Prosecutors said Shetty planned to send the company a fixed return while keeping any additional profits generated from the crypto investments.
At first, the strategy appeared to work. Court filings show the operation generated around $133,000 in its first month.
However, the broader crypto market soon plunged after the collapse of the Terra (LUNA) ecosystem in May 2022.
As the market spiraled downward, the value of HighTower’s investments quickly deteriorated. The portfolio tied to Shetty’s strategy fell from roughly $35 million to almost nothing during the crypto winter.
Once the losses became clear, Shetty admitted what he had done to colleagues at the company. He was later fired from his role.
Company Faced Major Damage and Layoffs
During sentencing, U.S. District Judge Tana Lin said the incident caused serious harm to the business.
According to the court, the company suffered “significant and severe effects” from the losses and was nearly forced to shut down.
The financial hit also led to layoffs, with around 60 employees losing their jobs as the company struggled to stabilize its operations after the missing funds.
Federal prosecutors had asked for a nine-year prison sentence, arguing that Shetty’s actions involved deception and caused lasting damage to the company and its employees. The court ultimately handed down a shorter two-year sentence.
$35M Restitution Ordered
In addition to the prison term, Shetty was ordered to pay $35,000,100 in restitution. After completing his sentence, he will also serve three years of supervised release.
Judge Lin also placed restrictions on Shetty’s future career, barring him from serving as an officer or director of a company without approval from a probation officer.
In a separate case highlighting crypto-related crime, two teenagers from California recently faced serious felony charges after authorities said they traveled hundreds of miles to carry out a violent home invasion in Scottsdale, Arizona in an attempt to steal cryptocurrency believed to be worth $66 million.
