Fabric Fintech Company Loses $35 Million in Reserve Capital, CEO Sentenced to 2 Years in Prison

Nevin Chetty, former Chief Financial Officer of Fabric, an e-commerce startup from Seattle, was sentenced to two years in prison last March for fraud and embezzlement of the company’s $35 million surplus, which he funneled into high-risk DeFi projects.

This case serves as a serious warning about the dangers of investing in unregulated cryptocurrency projects, especially when company funds and other officials’ money are at stake.

Secret Profit Scheme: HighTower Treasury

In 2022, Chetty, a senior executive with control over Fabric’s investment policies, launched a side business called HighTower Treasury, despite the company’s board not approving it.

Chetty’s plan was simple: transfer the $35 million surplus from Fabric into HighTower Treasury, then move the funds to high-yield DeFi protocols like Terra/Luna, which at the time offered annual returns of 20% or more.

This strategy is known as “crypto arbitrage” in accounting terms — Chetty planned to pay Fabric only 6% returns while pocketing the 14-20% difference as personal and business profit.

In the first 30 days, this yield farming appeared successful, generating about $133,000 in personal profit for Chetty. However, this happiness was short-lived.

The Collapse of TerraUSD: When Greed Leads to Disaster

In May 2022, the stablecoin TerraUSD (UST) “de-pegged,” meaning its value dropped below the $1 peg. This event, known as the “Terra collapse,” caused $40 billion in losses across the crypto market.

Within days, the $35 million surplus Chetty held was nearly wiped out. Fabric faced a deep financial hole, forcing the company to lay off 60 employees.

Penalties and Organizational Impact

The federal court sentenced Chetty to two years in prison. Judge Tanya Lin stated during sentencing: “Your actions have completely disrupted the lives of those 60 people… You nearly caused Fabric to go bankrupt… You were playing with money that wasn’t yours.”

The defense argued that Chetty only made unauthorized investments, not outright fraud. However, the jury found that Chetty’s “web of lies,” including hiding transfers from the board and other executives, constituted criminal activity.

Charles Neal Floyd, Assistant U.S. Attorney, said: “He chose the DeFi protocols offering up to 20% returns. His lies could not deceive the jury.”

Lessons for the Industry

Chetty’s case is one of the most significant criminal judgments related to managing company surplus funds and leveraging in the highly volatile crypto sector.

It reminds executives at Fabric and other organizations in the industry that: (1) company funds must be managed according to policies; (2) greed for high returns can lead to disaster; (3) investing in unregulated crypto projects increases risk.

Ultimately, the court’s decision shows that while digital asset investments are popular, handling company funds—like surplus fabric—with caution, risk awareness, and prudence is essential and unavoidable.