Summary:
- The U.S. Securities and Exchange Commission charged Hydrogen and its former chief operating officer, Michael Ross Kane on Wednesday.
- Charges include the sale of unregistered security tokens and alleged market manipulation.
- The startup made over $2 million in profits, per the agency’s filing.
- Hydrogen denied the claims and said the agency’s case “wholly lacks merit”.
New York-based startup Hydrogen Technology was charged by the U.S. Securities and Exchange Commission over claims of market manipulation and unregistered securities sales.
According to the filing on Wednesday, the issue began in 2018 when Hydrogen and its CEO Michael Ross Kane created the Hydro token. Afterward, the token was distributed to the public via an airdrop. Airdrops are common in crypto and companies leverage them as a means to gather supporters, investors, and users.
Hydrogen also allegedly distributed tokens through “bounty programs, employee compensation and direct sales on crypto asset trading platforms”. The charges claim that Hydrogen backed its token efforts by hiring a South Africa-located software company called Moonwalkers.
The firm leveraged Moonwalkers’s trading bots to prop up the price of Hydro tokens by manipulating trading volume and market activity, per the charges filed. Moonwalkers would then sell the tokens for inflated prices. The process allegedly raked in around $2 million in profits for Hydrogen.
As we allege, the defendants profited from their manipulation by creating a misleading picture of Hydro’s market activity.
– Joseph Sansone, Chief of the Enforcement Division’s Market Abuse Unit.
Hydrogen denied the claims and responded by saying the case “wholly lacks merit”. However, Moonwalkers CEO Tyler Ostern reportedly agreed to accept civil penalties and a $36,750 penalty.
SEC Intensifies Crypto Crackdown
The case against Hydrogen Technology is one of several probes into crypto activities including lawsuits against Ripple and Coinbase. Prosecutors from the agency have repeatedly accused crypto companies of breaking securities laws and failing to register with the agency.
In turn, crypto users have called out the commission for enforcing vague laws. Notably, Gary Gensler’s federal agency uses the Howie test to determine if crypto tokens are securities. The Howie test gives the tag to any investment that promises returns from third-party activities.
Gensler’s agency has also hinted that crypto’s largest altcoin blockchain, Ethereum, could also fall under the purview of securities regulations following the switch to a proof-of-stake-consensus model.