SEC Charges The Hydrogen Technology Corp. and its Former CEO for Market Manipulation of Crypto Asset Securities

The Securities and Exchange Commission today announced charges against The Hydrogen Technology Corporation, its former CEO, Michael Ross Kane, and Tyler Ostern, the CEO of Moonwalkers Trading Limited, a self-described “market making” firm, for their roles in effectuating the unregistered offers and sales of crypto asset securities called “Hydro” and for perpetrating a scheme to manipulate the trading volume and price of those securities, which yielded more than $2 million for Hydrogen.

The SEC’s complaint alleges that starting in January 2018, Kane and Hydrogen, a New York-based financial technology company, created its Hydro token and then publicly distributed the token through various methods:  an “airdrop,” which is essentially giving away Hydro to the public; bounty programs, which paid the token to individuals in exchange for promoting it; employee compensation; and direct sales on crypto asset trading platforms.  The complaint further alleges that, after distributing the token in those ways, Kane and Hydrogen hired Moonwalkers, a South Africa-based firm, in October 2018, 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.  Hydrogen allegedly reaped profits of more than $2 million as a result of the defendants’ conduct.

“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation, or other such methods,” said Carolyn M. Welshhans, Associate Director of the SEC’s Enforcement Division.  “As our enforcement action shows, the SEC will enforce the laws that prohibit such unregistered fund-raising schemes in order to protect investors.”

“As we allege, the defendants profited from their manipulation by creating a misleading picture of Hydro’s market activity,” said Joseph Sansone, Chief of the Enforcement Division’s Market Abuse Unit.  “The SEC is committed to ensuring fair markets for all types of securities and will continue to expose and hold market manipulators accountable.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Hydrogen, Kane, and Ostern with violating the registration, antifraud, and market manipulation provisions of the securities laws and seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and, as to Kane, an officer and director bar.  Without admitting or denying the allegations, Ostern has consented to a judgment, subject to court approval, permanently enjoining him from violating these provisions and participating in future securities offerings and ordering him to pay $36,750 in disgorgement and prejudgment interest of $5,118, with civil monetary penalties to be determined at a later date by the court.  Ostern has also agreed to an administrative order imposing a collateral industry bar and penny stock bar.

The SEC’s investigation was conducted by Sonia G. Torrico and Kathleen Hitchins, with assistance from John Marino of the Market Abuse Unit, David Crosbie from the Crypto Assets and Cyber Unit, and Olga Cruz-Ortiz of IT Forensics.  The case was supervised by Paul Kim, Mr. Sansone, and Ms. Welshhans.  The SEC’s litigation will be led by Nick Margida and supervised by James Connor.  The SEC appreciates the assistance of the Cayman Islands Monetary Authority, the Financial Sector Conduct Authority of South Africa, the Financial Supervisory Authority of Norway, and the Monetary Authority of Singapore.