Hawk Tuah Scam? Maybe Not
Is $HAWK, the meme coin launched by Hailey Welch, the “Hawk Tuah girl,” who became internet famous for a bawdy sex joke, a scam? X’s Community Notes declared it was stating, the “team” and insiders have actually been selling their tokens since launch . . . Hailey is lying and will have to “talk tuah” a judge about this.” YouTuber and crypto scam hunter CoffeeZilla asserted outright it was “rug pull.” Rolling Stone declared, “virtually nobody in the crypto industry” thinks it’s legitimate.
Looking into it, I expected to fully agree. But I’m not so sure.
At first blush it looks bad. Upon launch last week, $HAWK market cap exploded 900% to almost $500 million before quickly collapsing to $25 million and since rebounding slightly to $28 million. There is no doubt the team botched the optics. This has created the usual hysterics about SEC complaints, and lawyers itching to file class actions.
Hawk Tuah scam? Maybe
In reviewing what’s publicly known, let’s start with the Tokenomics, as produced the project team, and assume it’s accurate.
Accordingly, only 17% of the tokens were distributed pre-launch to “insiders” or “strategic advisors.” This was a few million tokens and according to Welch, included no one from the “team.” These “insiders” comprised around 80 interconnected wallets. They sold at launch and profited between $10k and $360k. Who owns these wallets and what they did for the project are currently unknown. If Hailey or the team own these wallets or got kickbacks from them, then they are lying.
The project—through a Caymen Island foundation—also benefited from transaction fees, which were unusually high. In the X stream, the project team stated the high fees were there to deter “snipers.” These are buyers who quickly purchase huge amounts on the open market and then immediately sell for a profit. One sniper grabbed 17.5% of the open supply and then dumped it in 1.5 hours for a $1.3M profit. It appears most of the “pump and dump” occurred in this way although most media conflate the “insiders” and the “snipers.”
Hawk Tuah Scam? Maybe Not
If the majority of the profit went to “snipers” who bought the tokens on the open market and quickly sold them, and the project team took measures to prevent this (as they claim), it’s hard to see how this is a “rug pull.” According to the Tokenomics, Welch herself cannot sell any tokens for one year. Her lawyer states she received $125k to promote the tokens.
Coffezilla, who abrasively confronted the team on the X stream appears to be softening his tone about the project.
Keep Howey out of $HAWK
There is much we still don’t know. But the fallout has already included calls for an SEC crackdown on meme coins, running them through the dreaded Howey test, and throwing people in jail.
Per Cointelegraph:
Kathryn Umi, a junior partner at crypto law firm OnChain Advisors said that if allegations were proven and the tokens were securities, then a list of potential legal violations may include inadequate disclosure charges, failing to register as a broker, unregistered broker-dealer activity, violations of the investment advisors act, and if the team failed to adhere to AML/KYC laws, they could also be charged under the Bank Secrecy Act and Patriot Act.
Good Lord.
This is exactly the wrong approach. Prosecuting fraud should be the extent the extent of the federal and state government’s crypto involvement, particularly for something as unserious as meme coins. As attorney Gregory Zerzan testified in 2022, the Federal Trade Commission Act (FTCA) already protects Americans unfair and deceitful practices, this surely applies to online activity.
If fraud did occur, the FTC should prosecute. But as Cointelegraph states “There is however no clear evidence of wrong-doing at this time.” And there actually may not be any. We should wait for the facts and leave Howey to the orange groves.
By Jossey PLLC
