SEC Brings Crypto Market Manipulation Case

SEC Charges The Hydrogen Technology Corp. and its Former CEO for Market Manipulation of Crypto Asset Securities

The Securities and Exchange Commission today announced charges against The Hydrogen Technology Corporation, its former CEO, Michael Ross Kane, and Tyler Ostern, the CEO of Moonwalkers Trading Limited, a self-described “market making” firm, for their roles in effectuating the unregistered offers and sales of crypto asset securities called “Hydro” and for perpetrating a scheme to manipulate the trading volume and price of those securities, which yielded more than $2 million for Hydrogen.

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:  an “airdrop,” which is essentially giving away Hydro to the public; bounty programs, which paid the token to individuals in exchange for promoting it; employee compensation; and direct sales on crypto asset trading platforms.  The complaint further alleges that, after distributing the token in those ways, Kane and Hydrogen hired Moonwalkers, a South Africa-based firm, in October 2018, to create the false appearance of robust market activity for Hydro through the use of its customized trading software or “bot” and then selling Hydro into that artificially inflated market for profit on Hydrogen’s behalf.  Hydrogen allegedly reaped profits of more than $2 million as a result of the defendants’ conduct.

Bitcoin Could ‘Double in Price’ Under CFTC Regulation, Chairman Behnam Says

Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam said Wednesday that CFTC-led regulation could have significant benefits for the crypto industry, including a potential boost to the price of bitcoin.

“Growth might occur if we have a well-regulated space,” Behnam told attendees during a fireside chat at NYU School of Law. “Bitcoin might double in price if there’s a CFTC-regulated market.”

SEC Enforcement Remedies Under Microscope Amid Aggressive Push

Courts have “been more involved in the SEC and how it’s doing remedies,” said Jeremiah Williams, a partner in Ropes & Gray LLP’s litigation and enforcement practice group. “There’s been more scrutiny, more litigation in this area.”

Defendants have accused the SEC of, among others, improperly seeking penalties in amounts beyond the law violator’s individual gains and pursuing injunctions that lack specifics.

Others also argue the government shouldn’t be able to pocket disgorgement payments—which the SEC uses to recover defendants’ ill-gotten gains—when securities fraud victims can’t be identified.

How lower courts decide these cases could help define the contours of the agency’s power when seeking disgorgement, injunctions, and other remedies. The SEC didn’t respond to a request for comment.

Justice Department Announces Total Distribution of Over $4 Billion to Victims of Madoff Ponzi Scheme

The Department of Justice announced today that the Madoff Victim Fund (MVF) began its eighth distribution of approximately $372 million in funds forfeited to the U.S. government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme.

In this distribution, payments will be sent to 27,219 victims across the globe, bringing their total recovery to 88.35%. The total amount distributed now exceeds $4 billion to more than 40,000 victims as compensation for losses they suffered from the collapse of BLMIS.

Texting – Bloomberg

My point here is that when these rules were written, it would have been absurd to say that brokers had to “appropriately conduct their communications about business matters within only official channels.” Everyone understood, in 1948, that only a small sliver of business was conducted in formal letters and memoranda, and that mostly you’d talk about business face-to-face. “As technology changes,” lots of forms of written electronic communication become substitutes not for memoranda, but for face-to-face conversation. So the SEC’s requirements constantly become broader. If you just talk to your colleagues in person, the SEC does not expect you to preserve that. Once you move that chat to WhatsApp, it does.

Crypto is Quietly Thriving in Sub-Saharan Africa

Small retail payments in Sub-Saharan Africa are powering exceptional crypto adoption and usage, with the region conducting the world’s highest proportion (80%) of crypto retail payments under $1,000, according to a report by blockchain data firm Chainalysis.

The report also highlights how peer-to-peer transactions are more common in Sub-Saharan Africa than anywhere else in the world. At about 6% of all crypto transaction volume, Africa’s peer-to-peer transactions dwarf those of Central and Southern Asia and Oceania, the region with the second-highest volume in that category.

Many Africans have integrated crypto into everyday life, the report says. Besides retail transactions, remittances and commercial transactions have also been key drivers for Africa’s high adoption and usage rates.

Reg FD Action Headed for Trial Where IR Department Alleged to Have “Walked Down” Consensus

For the first time, a Regulation Fair Disclosure (Reg FD) case may be headed to trial. On September 8, 2022, the Federal District Court for the Southern District of New York denied cross-motions for summary judgment in a case brought by the Securities and Exchange Commission (SEC) against AT&T, Inc. and three individuals who worked in the company’s Investor Relations (IR) Department. SEC v. AT&T, et al., Opinion and Order, 21 Civ. 1951 (PAE) (SDNY Sept. 8, 2022) (Order). Reg FD prohibits public companies from selectively disclosing material nonpublic information (MNPI) to certain individuals or entities—including Wall Street analysts. The SEC has alleged that, in early 2016, members of AT&T’s IR Department systematically leaked MNPI to analysts in an effort to have those analysts reduce their estimates of AT&T’s Q1 2016 revenue. The Court’s analysis—particularly when rejecting defendants’ request for summary judgment on the issue of materiality—provides some important takeaways for issuers to consider.