SEC Charges Crypto Firm Hydrogen Technology With Market Manipulation, Selling Unregistered Securities
by Arthur · September 29, 2022
The US Securities and Exchange Commission (SEC) has filed charges against The Hydrogen Technology Corporation, accusing it of “conducting unregistered offers and sales of securities in cryptoassets.”
The SEC’s complaint says that beginning in January 2018, Miami-based Hydrogen and former CEO Michael Ross Kane created the Hydro token and distributed it publicly through various methods, including an airdrop, bounty programs, employee compensation and direct sales on trading platforms.
The complaint further alleges that Kane and Hydrogen hired Moonwalkers Trading Limited, a South Africa-based firm, to create “the false appearance of robust market activity for Hydro” through the use of bot activity.
According to the regulator, this project helped sell the Hydro token to an “artificially inflated market for profit on Hydrogen’s behalf.”
Hydrogen allegedly collected more than $2 million in profits “as a result of the defendants’ conduct.”
“As we allege, the defendants benefited from their manipulation by creating a misleading image of Hydro’s market activity,” Joseph Sansone, chief of the Enforcement Division’s market abuse unit, said in a statement. “The SEC is committed to ensuring fair markets for all types of securities and will continue to expose and hold market manipulators accountable.”
To determine whether an asset is a security, the SEC uses the nearly century-old Howie test, which defines a security as an investment that promises some kind of return based on the efforts of a third party.
Theoretically, the case against Hydrogen could also signal that tokens distributed through airdrops can also be considered unregistered securities.
Airdrops are a method of distributing tokens to users or potential users. Recently, they have been used to make DAOs by transferring ownership and responsibility from a core team to its decentralized users.
Hydrogen denies the claims
In a statement, Hydrogen said the case “has been ongoing for many years and is completely without merit.” The company also said it will litigate the SEC’s case.
However, Tyler Ostern, CEO of Moonwalkers, agreed to pay back $36,750 in illegal winnings, as well as civil penalties that will be determined by the court at a later date, the SEC said.
In a filing in federal court in Manhattan, the SEC also sought a range of penalties against Hydrogen and Kane.
“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation or other such methods,” said Carolyn M. Welshhans, Assistant Director of the SEC’s Enforcement Division.
Per Welshhans, the Hydrogen case shows that the regulator “will enforce the laws that prohibit such unregistered fundraising schemes to protect investors.”