Potential charges Haliey Welch could face if SEC probes HAWK launch

As a seasoned researcher with extensive experience in the complex world of cryptocurrencies and their legal implications, I find myself deeply concerned about the recent debacle surrounding Haliey Welch’s HAWK memecoin launch. The rapid plunge in value, allegations of insider trading, and accusations of sniping are red flags that demand attention.

This week’s controversial rollout of memecoin HAWK by influencer Haliey Welch was tainted by accusations of market manipulation and insider trading, causing the token to nosedive a staggering 91% within mere hours.

Yuriy Brisov, a partner at law firm Digital and Analogue Partners, states that the Securities and Exchange Commission (SEC) has the authority to file civil cases for securities fraud against HAWK if it falls under the Howey test as an investment contract. This would involve accusations of misrepresentation or deception in the sale of these securities. Additionally, the Department of Justice (DOJ) could potentially bring criminal charges such as wire fraud or money laundering, particularly when there’s proof of intentional deceit or financial wrongdoing.

December 4th saw the unveiling of Welch’s HAWK memecoin. It momentarily reached an impressive value of $490 million, but then experienced a steep decline of more than 90%, dropping down to $30 million within just a few hours.

The launch faced accusations of insider trading along with suspicions that the supply was nearly monopolized by a handful of accounts. It also had issues concerning excessive fees being charged and the practice known as “sniping.

According to Brisov, whether the accusations involve insider trading hinges on whether the token is categorized as a security.

“Insider trading traditionally involves trading securities based on material, non-public information, breaching a duty of trust or confidence. In the context of cryptocurrencies, the legal framework is still evolving. If Welch’s team possessed non-public information about the token’s launch or had pre-arranged strategies to sell significant portions of the supply, leading to the token’s price collapse, such actions could be scrutinized under fraud or market manipulation statutes.”

In the public sphere, Welch openly stated that there was no engagement in insider trading by her team or any influential figures closely associated with them.

“Team hasn’t sold one token and not 1 KOL was given 1 free token,” she said in a Dec. 5 X post.

“We tried to stop snipers as best we could through high fees in the start of launch on Meteora.”

However, aggregated data from Dexscreener and Solana block explorer Solscan shows a string of more than 80 wallet addresses that had not purchased the token — suggesting they were allocated tokens before the launch — all of which sold their HAWK holdings for between $10,000 and $365,000 in profits.

Joni Pirovich, a legal expert in cryptocurrency at B’das*l, stated to CryptoMoon that any proof of trading based on confidential information would increase the potential penalties if Welch and her team were to face legal consequences in the future.

Using confidential information for personal gain is a significant legal concern in its own right, but deliberately deceiving or misguiding the public intensifies the gravity of the situation that has arisen, as stated by Pirovich.

The responsibility for launching a meme coin depends on how the U.S. Securities and Exchange Commission (SEC) categorizes cryptocurrencies within American territory. At present, most digital tokens are considered de facto securities by the SEC under Gary Gensler’s leadership, which implies that anyone releasing a token must register with the agency prior to doing so. Nonetheless, it remains unclear how meme coins will be classified.

In simpler terms, if a meme coin is sold with the expectation that investors will earn profits based on the efforts of its promoters, it might be classified as a security, according to Brisov’s statement.

According to Kathryn Umi, a junior partner at OnChain Advisors, if accusations are verified and the tokens are classified as securities, a variety of potential legal infractions might arise. These could involve charges for insufficient disclosure, failure to register as a broker, engaging in unregistered broker-dealer activities, violating the Investment Advisors Act, and if the team ignored Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, they might also face charges under the Bank Secrecy Act and Patriot Act.

As an analyst, I can’t help but mention a potential scenario where the Department of Justice might intervene should criminal charges arise. This is based on their recent activity, such as sentencing the founder of Bitcoin Fog crypto mixer to 12.5 years imprisonment.

Additionally, the Securities and Exchange Commission (SEC) has the authority to impose civil fines, and groups of investors have the option to collectively bring a lawsuit against the party in question.

Penalties for committing securities fraud can extend from hefty financial penalties right up to a possible 25-year jail term, whereas offenses related to market manipulation may result in fines of as much as $5 million or imprisonment for 20 years.

Pirovich added that it’s still not yet crystal clear whether or not memecoins are immediately considered securities on US soil. Additionally, a more pro-crypto approach under the incoming Donald Trump administration could see the legal treatment of crypto assets change drastically in the coming months.

However, Pirovich pointed out that average individuals are experiencing rising damages and financial setbacks as they engage in the trading of meme coins.

It would be advisable for Haliey and her team to secure a lawyer immediately, given the recent developments, potential impacts on others, and accusations leveled against them. These matters are quite troubling.

Additional reporting by Yohan Yun.

2024-12-06 17:09

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