Nevin Shetty, the former chief financial officer of Seattle-based startup Fabric, has been sentenced to two years in federal prison after a court found that he secretly diverted roughly $35 million in company funds into a high-risk cryptocurrency strategy. The case has drawn attention not only because of the size of the loss, but also because it sits at the intersection of corporate treasury governance, executive misconduct, and the collapse of one of crypto’s most infamous ecosystems: Terra/Luna.
According to the U.S. Attorney’s Office, Shetty moved $35,000,100 of Fabric’s cash into a side business he launched called HighTower Treasury. Prosecutors said the funds were then deployed into decentralized finance lending protocols tied to the Terra/Luna ecosystem, where annual yields of 20% or more were being advertised at the time. The strategy, authorities argued, was designed to let Shetty offer Fabric a lower, seemingly conservative return while personally capturing the spread.
A Secret Treasury Strategy Behind the Company’s Back
The facts outlined by prosecutors make the case particularly striking. Shetty was not a junior employee experimenting with company assets on the margin. He was Fabric’s CFO and had reportedly helped draft a conservative investment policy governing the startup’s treasury, which consisted of hundreds of millions of dollars in venture funding. That role placed him in a position of trust and gave him direct responsibility for safeguarding corporate liquidity.
Instead, in early 2022, he allegedly created an off-books side operation through HighTower Treasury and transferred company funds into that structure without proper authorization. Prosecutors described the plan as a classic crypto arbitrage approach: place money into high-yield DeFi products, pay the company a lower “safe” return of about 6%, and keep the excess yield—estimated at around 14%—for himself and his partner.
For a brief period, the trade appeared to work. In the first 30 days, the strategy reportedly generated around $133,000 in personal profit. But that early paper success did not last. The entire plan depended on continued stability inside the Terra ecosystem, and that assumption collapsed in spectacular fashion in May 2022.
TerraUSD’s Collapse Turned a Risky Bet Into a Corporate Crisis
When TerraUSD (UST) lost its peg, the fallout spread rapidly through the Terra/Luna complex and erased an estimated $40 billion in value. Assets tied to that ecosystem plunged, and within days the roughly $35 million in Fabric funds under Shetty’s control had fallen to virtually nothing, according to the case record summarized in the report.
The consequences were not contained to a balance-sheet write-down. Prosecutors said the hole left by the failed crypto gamble caused severe disruption inside Fabric and forced the company to lay off 60 employees. At sentencing, U.S. District Judge Tana Lin said the loss had “significant and severe effects” on the company and on the lives of those employees. She emphasized that Shetty was gambling with money that did not belong to him and that his actions nearly pushed the business to the brink.
The company impact became central to the government’s case. Prosecutors framed the conduct not as an aggressive but understandable treasury decision gone wrong, but as deliberate deception that inflicted lasting harm on the employer and its staff.
Why the Court Treated the Conduct as Fraud, Not Mere Bad Judgment
One of the key issues in the case was whether Shetty’s conduct should be seen simply as an unauthorized investment decision or as a federal crime. The defense reportedly argued for the former interpretation, suggesting that this was a case of poor judgment rather than fraud. The jury rejected that position.
Authorities said Shetty concealed the transfers from Fabric’s board and other executives and created what the prosecution described as a “web of lies.” That pattern of concealment was critical. In white-collar criminal cases, the difference between excessive risk-taking and fraud often turns on disclosure, authorization, and intent. Here, the government persuaded the jury that Shetty did not merely place a bad bet; he secretly diverted company money into a personal scheme for his own gain.
First Assistant U.S. Attorney Charles Neil Floyd underscored that point after the verdict, stating that Shetty knowingly chose high-yield DeFi protocols that advertised returns above 20% and then lied about what he was doing. In that framing, the criminal act was not just exposure to volatility, but the misuse of entrusted funds combined with concealment and self-enrichment.
A Major Warning for Corporate Treasury Management in Crypto
The Shetty sentencing stands out as one of the more notable criminal cases involving corporate treasury misuse and the extreme risks associated with DeFi-era yield strategies. It illustrates how quickly the language of “yield farming,” “safe return,” and “arbitrage” can unravel when governance controls are bypassed and treasury funds are treated as speculative capital.
The case also serves as a reminder that the implosion of Terra/Luna was not only a market event for crypto traders and token holders. Its effects reached startups, employees, and traditional corporate operations when executives or treasury managers used company cash to chase returns in on-chain markets. In this instance, the collapse exposed both market risk and governance failure at the same time.
For boards, founders, and finance teams, the lesson is straightforward. High-yield crypto products may promise attractive returns during favorable market conditions, but those returns often come with opaque counterparty risk, systemic fragility, and legal exposure if funds are deployed without proper authorization. Once secrecy enters the process, what begins as unauthorized risk-taking can become criminal misconduct.
By imposing a two-year prison sentence, the court signaled that executive misuse of corporate funds in crypto markets will not be treated lightly when deception is involved. The ruling may become a reference point in future cases involving treasury management, fiduciary duty, and the legal boundaries of corporate participation in decentralized finance.