SEC charges New York blockchain engineer over GME rug pull fraud

Blockchain engineer for the Game Coin project (GME), Eric Zhu has settled fraud claims with the US Securities and Exchange Commission (SEC). He allegedly orchestrated a rug pull scheme that defrauded investors in the Game Coin token (GME). Zhu will pay nearly $823K if the court approves the commission’s motion for final judgment.

The SEC claims that Zhu misappropriated $553K from GME investors by using his role as the project’s blockchain engineer for personal gain. The agency suggests that GME was sold as a security via liquidity pools. Eric Zhu could be one of the last cases the SEC handles in Gary Gensler’s term as the commission’s chair.

GME developer to pay $823K in SEC settlement

According to the release, Eric Zhu is an experienced blockchain engineer and was hired to perform coding work for GME. The token was offered and sold to the public through liquidity pools for trading crypto assets. If the court approves the settlement, Zhu will pay $553K in restitution, $120K in prejudgment interest, and a $150K civil penalty without admitting guilt.

A person who deposits a crypto asset token pair into a liquidity pool receives liquidity provider tokens (LP tokens). In the case of a rug pull, liquidity providers suddenly withdraw their funds, which destabilizes the token’s value and causes losses for investors. The SEC alleges that was the scheme Zhu ran with GME tokens.

The SEC mentioned that Game Coin and its founders depicted that liquidity was locked in a social media post. It suggested that LP tokens were “locked” and could not be used by the issuers or other insiders.

The commission found that certain LP tokens were moved to a blockchain address under Zhu’s control. The blockchain engineer kept those tokens unlocked and later used them to perform a rug pull. The SEC added that Zhu sold $553,000 worth of tokens, which caused a 12% decline in GME price.

The final act for top SEC officials 

The resolution of Eric Zhu’s case could be one of the last wins for the watchdog in the Gary Gensler regime. However, the outgoing chair has advised the commission to intensify its regulation of the crypto sector, mainly on altcoins.

Donald Trump’s historic win in the US presidential elections proved to be a game changer for the digital assets industry. Trump has nominated Paul Atkins, who is sympathetic to the crypto cause, to be the new SEC Chairman. BTC price has surged by over 50% in the last 90 days, hitting the $108k mark.

The commission has also announced that the Acting Director of the Division of Enforcement, Sanjay Wadhwa, will also depart from the agency by January 31, 2025.

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