A former chief financial officer in Seattle has been sentenced to two years in federal prison after secretly diverting $35 million of corporate funds into a high-risk cryptocurrency strategy tied to the Terra/Luna ecosystem. The case centers on Nevin Shetty, the 42-year-old former CFO of e-commerce startup Fabric, whose unauthorized use of company treasury funds ended in a wire fraud conviction and a major financial blow to the business.
A side business built on company money
According to information cited from the U.S. Attorney’s Office, Shetty had helped craft a conservative investment policy for Fabric, a company backed by hundreds of millions of dollars in venture capital. Despite that role, prosecutors said that in early 2022 he launched a separate venture called HighTower Treasury and used it to move $35,000,100 from Fabric without proper authorization.
Prosecutors described the plan as a classic crypto arbitrage strategy. Shetty allegedly funneled the money into DeFi lending protocols within the Terra/Luna ecosystem, where annual percentage yields of 20% or more were being advertised at the time. The government said he intended to offer Fabric a comparatively modest 6% return while keeping the spread—roughly 14%—for himself and a partner.
Early gains turned into near-total losses
For a brief period, the strategy appeared to be working. In its first month, the operation reportedly generated about $133,000 in personal profit. But the trade unraveled in May 2022 when TerraUSD (UST), the algorithmic stablecoin at the center of the Terra ecosystem, lost its peg to the U.S. dollar. That event triggered one of the most destructive collapses in crypto market history, wiping out an estimated $40 billion in value across the ecosystem.
Within days, the Fabric funds under Shetty’s control had fallen to virtually nothing. What had been positioned as a high-yield treasury strategy instead became a catastrophic loss, exposing the dangers of concentrating corporate cash in volatile DeFi products without governance approval or risk controls.
Impact on Fabric and the criminal case
The fallout extended well beyond balance-sheet damage. The financial hole left by the failed crypto bet forced Fabric to lay off 60 employees, a consequence the prosecution highlighted in court as evidence of severe and lasting harm. At sentencing, U.S. District Judge Tana Lin reportedly said the loss had significant effects on the company and threw the lives of laid-off workers into turmoil, adding that Shetty was “playing with money that wasn’t yours.”
The defense argued that the conduct should be viewed as an unauthorized investment decision rather than fraud. But jurors sided with prosecutors, who said Shetty concealed the transfers from the company’s board and other executives and built a broader “web of lies” around the movement and use of the funds. First Assistant U.S. Attorney Charles Neil Floyd said Shetty deliberately chose DeFi lending protocols that promised outsized returns and that the jury was not persuaded by his explanations.
A warning for corporate treasury management
The sentencing stands out as one of the more notable criminal cases involving misuse of corporate treasury assets in the digital asset sector. It underscores how the promise of elevated on-chain yields during the 2021–2022 crypto boom encouraged aggressive risk-taking, especially around DeFi lending and algorithmic stablecoin ecosystems such as Terra/Luna.
More broadly, the case illustrates the governance risks that arise when executives gain access to large pools of capital without sufficient oversight. It also serves as a reminder that in the corporate setting, the legal consequences of unauthorized crypto exposure can extend far beyond investment losses, particularly when deception and concealment are involved.
For the digital asset industry, the Fabric case highlights a familiar lesson from the Terra collapse: headline yields can mask structural fragility. For companies managing treasury capital, it is also a cautionary example of why internal controls, board visibility, and strict authorization procedures remain essential when dealing with high-volatility crypto products.