Federal prosecutors told a Seattle jury on Monday that the former chief financial officer of a Seattle-based startup committed wire fraud by funneling $35 million into his fintech venture that was wiped out during a subsequent cryptocurrency collapse, with defense counsel countering that "losing money with a bad investment is not a crime."

Kicking off what's expected to be an eight-day trial in federal court, prosecutors said Nevin Shetty stole $35 million from e-commerce software company Fabric Inc. for his own cryptocurrency startup, soon after learning he was being ousted from his role as Fabric's CFO in 2022.

Despite being instructed by Fabric's board of directors to put the cash into treasury accounts with banks — and knowing that his time at the company was limited — Shetty invested the money in cryptocurrency to further his "new side project" HighTower Treasury Corp. with the intention of pocketing the interest, said Grace W. Zoller of the U.S. Attorney's Office for the Western District of Washington.

"Shetty knew that Fabric would never approve of putting its money in cryptocurrency," Zoller said. "The longer he had that $35 million, the longer he could hide the truth, the more money he could make for himself."

Alex Little of Litson PLLC, representing Shetty, told jurors that the government went after Shetty because Fabric and the venture capitalists behind it were looking for someone to blame for an investment that didn't pan out.

"Losing money with a bad investment is not a crime," Little said. "My client did not steal from Fabric, which is why at the end of this case, I will come back to you and ask for the only verdict that's consistent with the facts, which is not guilty."

A Seattle grand jury indicted Shetty on four counts of wire fraud in May 2023, based on the government's allegations that he took and misused $35 million for his side business and concealed the cryptocurrency investment from Fabric's leadership.

According to prosecutors, the board made clear to Shetty that it wanted the company's money to go into traditional treasury accounts at banks to preserve capital and keep Fabric afloat as it developed its software products. Shetty helped draft a written investment policy in line with that strategy, assuring a board member in an early 2022 email that the finance team would stick with "relatively vanilla" investment options.

Zoller said Shetty laid the groundwork for his scheme after being informed in mid-March 2022 that he would lose the CFO position in the coming months amid board concerns about performance issues. He timed the transfers to coincide with the company's transition to a new payroll system in early April, with the hopes the missing money would go unnoticed because other company funds were being moved around, according to prosecutors.

"Shetty's scheme only worked because he had insider knowledge of how Fabric's business functioned and access to its bank accounts," Zoller said.

After transferring the money to HighTower in several installments, Shetty invested Fabric's money in Terraform Labs' TerraUSD — a type of cryptocurrency known as a "stablecoin" that aims to maintain a consistent price — and other digital assets. But the stablecoin collapsed within weeks, and by mid-May 2022, the cryptocurrency was practically worthless, Zoller said.

Little argued that Fabric had entrusted Shetty to make financial decisions on the company's behalf and had chosen to invest in TerraUSD to further the company's stated goals of diversifying its investments and increasing revenue.

"They want you to believe that self-dealing, the fact that he was a minority owner in HighTower, makes this a crime," Little said, noting Shetty had a 33% ownership stake in HighTower.

Terraform's South Korean founder, Do Kwon, has been indicted in New York federal court for duping users and investors with false promises about the viability of TerraUSD. Kwon pled guilty in New York federal court last month to fraud and conspiracy charges tied to the scheme, which allegedly wiped out $40 billion in market value when it collapsed.

Little showed jurors an excerpt of Kwon's indictment and his misrepresentations about TerraUSD while presenting Shetty's opening statement on Monday.

"My client, like thousands of other victims, was misled about how stable that stablecoin was," Little said.

In an Oct. 7 trial brief, Shetty accused Fabric of a "coordinated campaign" to "criminalize an executive's business judgment."

"Fabric hired a former Department of Justice prosecutor who lobbied federal authorities to bring charges and suggested Mr. Shetty might flee the country — none of which was true," the trial brief states. "Yet when it came time to report the loss to the IRS, Fabric classified it exactly as what it was: an investment loss."

But on Monday, the government's counsel maintained that Shetty "lied and took money that did not belong to him so that he could make money for himself."

"You are not here because Shetty made a losing investment in cryptocurrency," Zoller said. "You are here because that choice was not Shetty's to make in the first place."

Shetty sought a court order forcing Kwon to testify at the ex-Fabric CFO's trial. But U.S. District Judge Tana Lin denied that petition last month, concluding she "cannot justify the expense, time and security risks that will be associated with transporting Mr. Kwon to the Western District of Washington to testify at Mr. Shetty's trial."

"While Mr. Kwon might be the source of some of the information that Mr. Shetty relied upon, only Mr. Shetty can state what information he actually relied upon to make his decisions and, ultimately, the investments in [TerraUSD]," Judge Lin wrote in the Sept. 16 order.

The federal government is represented by Philip Kopczynski and Grace W. Zoller of the U.S. Attorney's Office for the Western District of Washington.

Shetty is represented by Alex Little and Zachary C. Lawson of Litson PLLC and Jeffrey B. Coopersmith of Corr Cronin LLP.

The case is USA v. Shetty, case number 2:23-cr-00084, in the U.S. District Court for the Western District of Washington.