After Ripple, Hydrogen is in the sights of the SEC. On September 28, 2022, the US regulator SEC formally accused Hydrogen of selling its HYDRO tokens in the form of unregistered “securities” and making a dishonest gain by manipulating the market. An accusation that is reminiscent of that brought against Ripple.
SEC indicts Hydrogen
The Hydro project is a multi-chain decentralized ecosystem used to secure user identities, accounts, and transactions. Its HYDRO token started being distributed in January 2018. To date, the token is ranked 1804th among global cryptocurrencies with a capitalization of 316,000 euros.
In a September 28, 2022 press release, the SEC directly attacks several individuals and entities:
- The Hydrogen Technology Corporation;
- Its former CEO, Michael Ross Kane;
- Tyler Ostern, the CEO of Moonwalkers Trading Limited, a company that presents itself as a “market maker” (or market maker).
Hydrogen accused of market manipulation
The SEC statement then details the methods used by Hydrogen to distribute HYDRO tokens since January 2018:
- Airdrop, i.e. a public distribution of tokens;
- Bounty programs where people received tokens in exchange for their promotion;
- Compensation of employees;
- Direct token sale on crypto exchanges.
The regulator particularly points the finger at the use of a personalized trading bot and the sale of Hydro tokens in an artificially inflated market.
Another question of “security”
In this case, we find the question (now almost recurrent) of the nature of certain crypto tokens. Indeed, in the statement of its indictment, the SEC speaks of “unregistered offers and sales of crypto-asset securities ”.
The SEC, therefore, considers the HYDRO token not as a cryptocurrency but as a “security”, that is to say, financial security. As such, the Hydrogen company should have followed a certain number of rules when distributing and selling its tokens.
“Companies cannot circumvent federal securities laws by structuring unregistered offers and sales of their securities as bonuses, compensation, or other such methods” Carolyn M. Welshhans, Associate Director of the Law Enforcement Division (SEC)
The SEC, therefore, intends to enforce the law regarding these unregistered fundraising systems. The stated objective is the protection of investors.
A case that echoes Ripple.
The Hydrogen situation is not unlike the SEC case against Ripple. Indeed, the SEC also accuses Ripple of raising funds through an unregistered offering of digital securities. Ripple has therefore been under investigation since December 2020 regarding the sale (considered by the SEC to be illegal) of XRP tokens.
The Ripple company has already spent more than $100 million in its defense. Company CEO Brad Garlinghouse recently spoke to CNBC cameras.
For him, the law and the facts are very clear. For the XRP token to be financial security, there would have to be an investment contract that gives rights to investors or obliges the issuer to act in their interest.
However, according to Garlinghouse, such a contract does not exist.
It now remains to be seen whether the affairs of Ripple and Hydrogen will take the same turn. Ripple is trying to speed up the process as much as possible and hopes to provide much-needed clarity to the entire industry.
It now remains to be seen whether the affairs of Ripple and Hydrogen will take the same turn. Ripple is trying to speed up the process as much as possible and hopes to provide much-needed clarity to the entire industry.
If Ripple manages to win its case before the SEC and certify that the XRP token is not a security, no doubt Hydrogen's case will become much simpler.
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