Securities and Exchange Commission (SEC) officials have detailed charges against a firm and two individuals, alleging violation of the registration, antifraud, and market manipulation provisions of the securities laws.
The SEC complaint alleges the financial technology company Hydrogen Technology Corporation, former CEO Michael Ross Kane, and Tyler Ostern, the CEO of Moonwalkers Trading Limited, a self-described “market making” firm, effectuated the unregistered offers and sales of crypto asset securities called “Hydro” and perpetrated a scheme manipulating the trading volume and price of those securities – yielded more than $2 million for Hydrogen.
“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation, or other such methods,” SEC Enforcement Division Associate Director Carolyn M. Welshhans said. “As our enforcement action shows, the SEC will enforce the laws that prohibit such unregistered fund-raising schemes in order to protect investors.”
Within the SEC’s complaint, the agency alleges beginning in January 2018, Kane and Hydrogen created its Hydro token and then publicly distributed the token through various methods – an “airdrop” – 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 SEC alleges after distributing the token, Kane and Hydrogen hired Moonwalkers 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.
The SEC order seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and, as to Kane, an officer and director bar.
Ostern, without admitting or denying the allegations, has consented to a judgment, subject to court approval.