SEC Charges Crypto Firm Hydrogen Technology With Selling Unregistered Securities

SEC Charges Crypto Firm Hydrogen Technology With Selling Unregistered Securities

September 29, 2022

The U.S. Securities and Exchange Commission has charged The Hydrogen Technology Corporation with “violating the registration, antifraud, and market manipulation provisions of the securities laws.”

According to a Wednesday statement, the regulator also charged the New York-based firm’s former CEO, Michael Ross Kane, alongside Tyler Ostern, CEO of “Market-making firm” Moonwalkers Trading Limited, for their alleged roles in effectuating the said securities crimes.

The SEC claimed that the racket started in January 2018 when Kane and Hydrogen created its Hydro token and then publicly distributed the token through various methods, including airdrops, bounty programs, employee compensations and direct sales on crypto asset trading platforms. 

According to the complaint, Hydrogen later hired Moonwalkers “to create the false appearance” of robust market activity for Hydro through a specially customized bot. The SEC further claims that the firms would later dump the cryptocurrency “into that artificially inflated market for profit on Hydrogen’s behalf,” raking in as much as $2 million in the process.

“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, Associate Director of the SEC’s Enforcement Division.  “As our enforcement action shows, the SEC will enforce the laws that prohibit such unregistered fund-raising schemes in order to protect investors.”

Although the application of securities law remains a hotly contested issue between crypto industry leaders and the SEC, the regulator has often insisted on applying the century-old Howey test, which defines a security as “an investment of money in a common enterprise with profits to come solely from the efforts of others” and charged multiple crypto entities for securities violations. 

On several occasions, SEC’s chair Gary Gensler has insisted that cryptocurrencies should be regulated under securities laws. However, his averments that Bitcoin and some digital assets are not securities continue to aggravate regulatory confusion among industry players. When asked by US Senator Pat Toomey at a recent Senate Banking Committee Hearing to explain whether “it is possible to have a common enterprise if something is decentralized” -with reference to his proclamations that Bitcoin is not a security- Gensler said;

You could have some things that quite open but still have the public is anticipating a profit based upon that common enterprise.” 

That said, despite its failure to provide a crypto-specific roadmap to the registration and regulation of cryptocurrencies, Wednesday’s charges suggest that the SEC will keep on purging on “nefarious players” within the nascent sector until Congress provides moves in with speed to clear up this regulatory muddle.

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