SEC Targets Crypto Firm Hydrogen and Ex-CEO Over Market Manipulation and Unregistered Sale of Securities

On Thursday, the Securities and Exchange Commission (SEC) filed a complaint against The Hydrogen Technology Corporation, its former CEO, Michael Ross Kane, and Tyler Ostern, CEO of Moonwalkers Trading Limited, a self-described “market making” firm. The complaint alleged that in addition to the unregistered offer and sale of securities, the defendants took part in a market manipulation scheme by creating a misleading picture of the “Hydro” token’s market activity in order to profit to the tune of more than $2 million.

The Southern District of New York filing explained that beginning in January 2018, Kane and New York-based Hydrogen, a fintech firm, created the Hydro token and distributed it in multiple ways: giving it away, distributing it via “bounty programs” through which it exchanged token for individuals’ promotion of the Hydro, employee compensation, and direct sales on crypto asset trading platforms. 

The offer and sale of tokens was without registration, the SEC said, stating that structuring sales as bounties, compensation, or through other such methods does not detract from a firm’s registration obligations.

In October 2018, Kane hired Moonwalkers, a South African company, 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.” Specifically, and among other tactics, Ostern placed and canceled both buy and sell orders of random increments to artificially inflate the Hydro token’s trading volume and price, thereby buoying Hydro sales profits, the complaint said.

The civil suit charged the defendants with violations of the registration, antifraud, and market manipulation provisions of the securities laws and requested conduct-based injunctions, disgorgement with interest, civil penalties, and, as to Kane, an officer and director bar. 

The SEC’s accompanying press release noted that Ostern has agreed to resolve the charges by refraining from other violative conduct and paying just over $41,000 in disgorgement and interest, with civil monetary penalties to be determined by the court at a later date.