The disastrous launch of influencer Haliey Welch’s Hawk Tuah (HAWK) memecoin this week saw the token plummet 91% in just three hours due to sniping and insider trading allegations.
Welch denied the claims and authorities have not announced any investigation.
But Welch and her team could face significant legal scrutiny if the U.S. Securities and Exchange Commission or the Department of Justice (DOJ) decides to investigate the controversial launch.
The SEC could file civil charges for securities fraud alleging misrepresentation or fraud in the sale of securities if HAWK qualifies as a security under the Howey test, according to Yuriy Brisov, a partner at law firm Digital and Analogue Partners. The Department of Justice may consider criminal charges, such as wire fraud or money laundering, especially if there is evidence of intentional fraud or financial misconduct.
On December 4, Welch launched the HAWK memecoin, which briefly soared to a high of $490 million before plummeting more than 90% to $30 million in a matter of hours.
The price of the Hawk Tuah memecoin has fluctuated wildly since its launch. Source: DexScreener
The launch was marred by insider trading allegations and allegations that supply was controlled almost entirely by a small number of addresses, fee extortion and sniping.
Brisov said whether a claim constitutes insider trading depends on whether the tokens are classified as securities.
“Insider trading is traditionally the practice of trading securities based on material, non-public information, which constitutes a breach of duty of confidence. The legal framework in the context of cryptocurrency is still evolving. If Welch’s team had non-public information about a token launch or had a strategy in place to sell a significant portion of the supply in advance, causing the price of the token to plummet, such actions could be scrutinized under fraud or market manipulation statutes. ”
Welch has publicly denied any insider trading activity on behalf of his team or any associated key opinion leaders (KOLs).
“The team did not sell a single token and not a single KOL received a single free token,” she said in an X post on December 5.
“We did our best to keep shooters at bay with high fees in the early days of Meteora launch.”
However, aggregate data from Dexscreener and Solana block explorer Solscan shows more than 80 wallet address strings that did not purchase any tokens. This suggests that the tokens were allocated prior to launch, and they all sold their HAWK holdings for a profit between $10,000 and $365,000. .
There were over 80 wallets that did not purchase HAWK tokens but instead sold them for a profit. Source: DexScreener
Joni Pirovich, a cryptocurrency attorney at law firm B’das*l, told Cointelegraph that evidence of trading on insider knowledge would add to the severity of future legal repercussions for Welch and her team.
“Leveraging inside knowledge to profit is a serious legal issue in itself, but knowingly lying or misleading the public further compounds the seriousness of what happened and what is alleged,” Pirovich said.
Responsibility for the launch of memecoins will depend on how the SEC treats cryptocurrency assets on US soil. Currently, most cryptocurrency tokens are treated as securities in nature by the Gary Gensler-led SEC. This means that anyone issuing tokens must register with the relevant authority in advance. However, the status of MEMCOIN is not clear.
Although Memecoins often lack intrinsic value or traditional asset backing, they can be considered securities if they are sold in a way that entices investors to expect to profit from the promoters’ efforts, Brisov said.
The SEC states that digital assets, regardless of their form, can be classified as securities based on their economic reality. Source: Samsung Electronics
Kathryn Umi, junior partner at cryptocurrency law firm OnChain Advisors, said that if the claims are substantiated and the tokens are securities, the list of potential legal violations includes improper disclosure fees, failure to register as a broker, operating as an unregistered broker-dealer, and violations of the Investment Advisers Act. , if your team fails to comply with AML/KYC laws, you may also be subject to prosecution under the Bank Secrecy Act and the Patriot Act.
Umi also pointed out that the Justice Department may be involved in potential criminal charges, noting that the Justice Department was recently involved in indicting the founder of the Bitcoin Fog cryptocurrency mixer, who was sentenced to 12.5 years in prison.
“The SEC can also enforce civil penalties, and investors can also file class action lawsuits,” she added.
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Punishments for securities fraud range from large fines to up to 25 years in prison, while penalties for market manipulation range from fines of up to $5 million to 20 years in prison.
Pirovich added that it is not yet clear whether memecoins will immediately be considered securities on U.S. soil. Additionally, the legal treatment of cryptocurrency assets could change significantly in the coming months if a more cryptocurrency-friendly approach is taken under the incoming Donald Trump administration.
“However, the harm and financial loss suffered by ordinary people trying to make money from memecoin trading is increasing,” Pirovich said.
“If Haliey and her team have not already sought legal advice, they should do so as soon as possible. “The changes in circumstances, the consequences for those affected, and the allegations against Haliey and her team are very concerning.”
Additional information from Yoon Yohan.
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