Haley Welch could be sued if SEC starts HAWK.
This week, influencer Haley Welch's Hawk Tuh (HAWK) memecoin was marred by allegations of hacking and insider trading after a shocking launch, with the token plunging 91 percent in three hours.
Welch denied these claims, and authorities did not investigate.
However, Welch and her team could face intense legal scrutiny if the US Securities and Exchange Commission or the Department of Justice (DOJ) decide to investigate the controversial startup.
If HAWK qualifies as a security under the Hawaii test, it could pursue civil lawsuits alleging securities fraud, misrepresentation or deception in the sale of securities, according to Yuri Brysov, a partner at law firm Digital & Analog Partners. The DOJ may consider criminal charges such as wire fraud or money laundering, especially if there is evidence of intentional deception or financial misconduct.
On December 4, Welch launched the HAWK memecoin, which soared to a high of $490 million before dropping 90% to $30 million within hours.
The price of Hawk Tuah memecoin has taken a beating since its launch. Source: DexScreener
The startup was marred by allegations of insider trading, as well as its supply being almost entirely controlled by a handful of addresses, money laundering and collusion.
Brysov said whether the allegation is insider trading depends on the token's classification as a security.
“Insider trading typically involves material trading guarantees, non-public information, breach of trust or fiduciary duty. In terms of cryptocurrencies, the legal framework is still evolving. If the Welch Group has non-public information about the launch of the token or has pre-arranged strategies to sell a large portion of the supply, which If it leads to a drop in the token's price, such actions may be investigated under fraud or market manipulation laws. You can.
Welch has officially prohibited any insider trading on behalf of her team or any relevant key opinion leaders (KOLs).
“Team did not sell 1 token and 1 KOL was not given 1 free token,” she said in a December 5 X post.
“We've tried to stop shooters as much as we can by placing high payouts on Meteora's launch.”
However, aggregate data from DexScreener and Solana block explorer Solscan shows that more than 80 wallet addresses that did not purchase tokens – suggesting tokens were allocated prior to launch – all sold their HAWK holdings at a profit of between $10,000 and $365,000. .
There were over 80 wallets that bought and sold HAWK tokens for profit. Source: DexScreener
Johnny Pirovich, a crypto attorney at the law firm B'das*l, told Cointelegraph that any evidence of trading on insider knowledge would make any future legal consequences against Welch and her team difficult.
“Profiting from insider knowledge is a serious legal matter in and of itself, but knowingly lying or misleading the public adds to the seriousness of what was created and charged,” Pirovich said.
Liability for the memecoin startup hinges on how the SEC handles crypto assets on US soil. Currently, most crypto tokens are considered securities by the Gary Gensler-led SEC, which means that anyone issuing a token must first register with the agency. However, the status of memecoins is unclear.
Although memecoins often lack intrinsic value or traditional asset backing, they can be considered securities if they are marketed in a way that allows investors to expect a profit from the promoter's efforts, Brisov said.
The SEC states that digital assets can be classified as securities regardless of their economic realities. Source: SEC
Kathryn Umi, junior partner at crypto law firm OnChain Advisors If the charges are proven and the tokens become securities, the list of possible legal violations could include insufficient disclosure fees, such as failure to register as a broker, unregistered broker-dealer activity, violation of investment advisors, and the team will take action against AML. /If you don't comply with KYC rules, you may be sued by your bank. Privacy Act and Patriot Act.
Umi also noted that there is a possibility that the Justice Department could be involved in any criminal prosecution, noting that the agency's latest involvement resulted in the 12.5-year prison sentence for the founder of the Bitcoin Fog crypto mixer.
“The SEC can also enforce civil penalties, and investors can file class-action lawsuits,” she added.
Related: Is the ‘memecoin supercycle' already over? Analysts weigh in.
Penalties for securities fraud range from large fines to up to 25 years in prison, while securities fraud carries penalties of up to $5 million and up to 20 years in prison.
Pirovich added that it is not yet clear whether memecoins will immediately be considered safe on US soil. Additionally, a more pro-crypto approach under the incoming Donald Trump administration could significantly change the legal treatment of crypto assets in the coming months.
“However, every day the damage and financial losses are increasing due to people trying to make money from the memecoin business,” Pirovic said.
“If Hallie and her team do not retain legal counsel, they should do so as soon as possible. The turn of events, the consequences for those affected, and the allegations against Hallie and her team are extremely disturbing.
Additional reporting by Yohan Yun.
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