SEC charges Hydrogen and its former CEO with crypto market manipulation

In another legal action linked to cryptocurrencies, the United States Securities and Exchange Commission (SEC) has charged financial technology company Hydrogen, its former chief executive officer, as well as its market maker for crypto asset securities manipulation.

Specifically, the SEC has pressed charges against Hydrogen, its former CEO Michael Ross Kane, as well as Tyler Ostern – the CEO of the market-making firm Moonwalkers Trading, accusing them of “violating the registration, antifraud, and market manipulation provisions of the securities laws,” according to a press release from September 28.

As per the press release:

“The SEC’s complaint alleges that starting in January 2018, Kane and Hydrogen, a New York-based financial technology company, created its Hydro token and then publicly distributed the token through various methods.”

Details of the charges

It further refers to the token distribution as “unregistered offers and sales of crypto asset securities,” claiming it was part of “a scheme to manipulate the trading volume and price of those securities.”

As the SEC’s complaint also alleges, Hydrogen “yielded more than $2 million” for itself by creating “the false appearance of robust market activity for Hydro through the use of its customized trading software (…) and then selling Hydro into that artificially inflated market.”

Therefore, the regulator is seeking that the federal district court in Manhattan, where the charges were filed, order “permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and, as to Kane, an officer and director bar.”

SEC insists tokens are securities

According to Carolyn M. Welshhans, Associate Director of the SEC’s Enforcement Division:

“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation, or other such methods. (…) The SEC will enforce the laws that prohibit such unregistered fund-raising schemes in order to protect investors.”

Notably, these charges are similar to those brought up in the legal battle that the SEC is waging against Ripple Labs, accusing the blockchain company of illegally selling XRP tokens, as the regulator views them as subject to the country’s securities laws.

Recently, Ripple’s legal team filed a motion to dismiss the case, arguing that the tokens it issued cannot be considered securities, as there was no “investor contract” involved that would grant investors rights or oblige the issuer to act in their interest, as Finbold reported.