- Hegic created and sold a governance token called WHITE before announcing a critical vulnerability in its options trading protocol. The price of WHITE plunged after the vulnerability was disclosed.
- Roughly half of the WHITE tokens were removed from circulation via Hegic’s treasury address after the price collapsed. Some experts say this raises red flags around potential insider trading.
- Hegic claims it acted properly and disclosed information when required. But experts argue the timing is suspicious and regulators should investigate further.
Crypto Insider Trading? Hegic’s WHITE Token Trades Might Attract SEC‘s Attention, Experts Say. “It seems like there’s smoke here, and it may be worth an investigation to see if there’s a fire,” a finance professor said.
Hegic’s Token Activity
Hegic created and sold a governance token called WHITE before announcing a critical vulnerability, according to experts, exchanges and blockchain data reviewed by CoinDesk. The team bought back almost half the supply days later after the price collapsed. Some industry observers say the activity raises red flags.
Potential Issues
- Hegic issued 10 million WHITE tokens on Oct. 22 but did not disclose a critical vulnerability in its options trading protocol until Oct. 31.
- The price of WHITE plunged from $1.32 on Oct. 31 to $0.69 on Nov. 1. Roughly 4.7 million tokens were removed from circulation via Hegic’s treasury address between Oct. 31 and Nov. 3.
- “It seems like there’s smoke here, and it may be worth an investigation to see if there’s a fire,” said Tyler Gellasch, a former SEC official now leading the Healthy Markets Association.
Hegic’s Response
The Hegic team said WHITE was meant to be a governance token for its decentralized protocol options platform. The tokens were issued and listed on exchanges without restrictions. Team members bought roughly as many tokens as outside investors.
Expert Opinions
- “If they induced investors to buy tokens, didn’t disclose a material defect they knew about and then bought back tokens at a steep discount, that raises some red flags,” said Lee Reiners, executive director of the Global Financial Markets Center at Duke Law.
- “It looks like they had exclusive, non-public information about a critical vulnerability,” said Philip Moustakis, counsel at Seward & Kissel LLP and former SEC senior counsel. “There’s certainly enough smoke for regulators to take a look.”
- Hegic said it “did not withhold any information that could impact the perceived value of the WHITE token.” The company said it will cooperate with any inquiries.
Conclusion
The timing of Hegic’s WHITE token activity around its disclosure of a critical vulnerability has prompted scrutiny from experts. While Hegic maintains it acted properly, some say regulators should investigate further. The case highlights potential issues around governance tokens and insider trading in decentralized finance.
