SEC Alert! SEC charges a self-described “market making” firm, for their roles in effectuating the unregistered offers and sales of crypto asset securities and for perpetrating a scheme to manipulate the trading volume and price of those securities.
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.
The SEC’s complaint, filed in federal district court in Manhattan, charges Hydrogen, Kane, and Ostern with violating the registration, antifraud, and market manipulation provisions of the securities laws and seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and, as to Kane, an officer and director bar. Without admitting or denying the allegations, Ostern has consented to a judgment, subject to court approval, permanently enjoining him from violating these provisions and participating in future securities offerings and ordering him to pay $36,750 in disgorgement and prejudgment interest of $5,118, with civil monetary penalties to be determined at a later date by the court. Ostern has also agreed to an administrative order imposing a collateral industry bar and penny stock bar.