Crypto Derivative Platform Hegic’s Profitable DeFi Strategy Could Spark Probe From SEC – Here’s Why

Andrew Throuvalas
Last updated: | 1 min read
SEC Building
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Hegic, a crypto derivatives trading platform, may have just exposed itself to an insider trading probe from the U.S. government following a profitable but sketchy trade with an affiliate company.

The platform recently scored $17 million when its pseudonymous founder, Molly Wintermute, announced that she would sunset development for Whiteheart, Hegic’s less popular sister platform.

In her Discord announcement, she revealed that the platform would return its $28 million treasury to investors before shutting down. That prompted a wave of demand for Whiteheart’s token, WHITE, before the payouts were made official, with arbitragers bolstering its price sixfold up to $3500 last month.

Hegic, the larger and ongoing platform, is responsible for initiating the payouts. More pressing, however, is that Hegic purchased almost one-third of WHITE token’s supply just three days before Wintermute announced the Whiteheart’s closure.

Combined with an earlier September purchase, Hegic alone now bears a claim to roughly half of Whiteheart’s entire treasury. Thanks to crypto markets appreciating this month, that’s now $17 million worth of Ether (ETH).

Does This Count As Insider Trading?

In traditional securities markets, publicly traded companies are barred from trading on private information that they know could swing the market once it becomes public – otherwise known as “insider trading.”

According to securities experts interviewed by CoinDesk, the same rules don’t yet formally apply to cryptocurrencies since regulators are still at odds with how to formally classify them. For Gary Gensler, however – the chairman of the Securities and Exchange Commission (SEC) – that may not matter, since he views the vast majority of crypto as falling under the securities umbrella.

“I think he would think it was a security and maybe an enforcement case would be appropriate,” said James Park, a law professor at UCLA, regarding WHITE token.

As part of their defense, Park said DeFi founders like Wintermute could claim they do not control their creations, and thus have no fiduciary responsibility to not frontrun their shareholders. However, Wintermute’s role as the ole core developer of both Whiteheart and Hegic, conducting their token sales and controlling their treasuries, are deathblows for this line of argument.

“They are not some random person who is trading, but some person who token-holders entrusted to develop this project in a way that would help them increase their profits,” said Park.