Crypto Derivative Platform Hegic Faces Potential SEC Investigation Over Controversial Trade
Hegic, a prominent crypto derivatives trading platform, may find itself under investigation by the US Securities and Exchange Commission (SEC) due to a suspicious trade involving an affiliate company. The platform recently made a significant profit of $17 million after its founder, Molly Wintermute, announced the discontinuation of Whiteheart, a sister platform with less popularity.
Wintermute disclosed in a Discord announcement that the platform would return its $28 million treasury to investors before shutting down. This resulted in a surge in demand for Whiteheart’s token, WHITE, even before the official payouts were confirmed. The influx of arbitragers caused the token’s price to skyrocket sixfold, reaching $3500 last month.
What raises concerns is that Hegic, the larger, ongoing platform, purchased almost one-third of the entire supply of WHITE tokens just three days before Wintermute’s announcement of Whiteheart’s closure. Coupled with a previous purchase in September, Hegic now holds a claim to approximately half of Whiteheart’s treasury. With the recent appreciation of crypto markets, this translates to $17 million worth of Ether (ETH).
The question arises as to whether this can be classified as insider trading. In traditional securities markets, publicly traded companies are prohibited from trading based on non-public information that could influence the market. Although the rules around cryptocurrencies are still unclear, SEC Chairman Gary Gensler believes that most crypto assets fall under the securities category.
Legal experts suggest that Gensler might consider this a securities violation and pursue enforcement action. James Park, a law professor at UCLA, states that Gensler would likely view the WHITE token as a security. Wintermute and other DeFi founders may argue that they have no fiduciary duty to shareholders since they do not have control over their creations. However, Wintermute’s key role as the core developer of both Whiteheart and Hegic, overseeing token sales and treasury management, weakens that argument.
According to Park, Wintermute and other founders are not mere traders but individuals entrusted with developing projects that generate profit for token holders. This responsibility could reinforce the case for an SEC investigation into Hegic’s trading activities.