President's Meme Coin Announcement Sparks 50% Price Surge, Ethical Concerns

The President's recent announcement regarding his TRUMP meme coin has sparked significant debate and scrutiny. The President declared that the top 220 holders of the TRUMP meme coin would be invited to an exclusive dinner with him, while the top 25 holders would receive a VIP tour of the White House. This announcement has raised ethical concerns and potential legal implications.

Richard Painter, a former ethics lawyer for President George W. Bush, clarified that while the President's actions do not violate the US Constitution, they could potentially lead to fraud lawsuits if the promised perks are not delivered by the May deadline. The announcement has been met with criticism over potential corruption and market manipulation.

Despite the ethical questions, the President's actions have so far avoided legal challenges. The Emoluments Clauses of the US Constitution, which are designed to prevent corruption, primarily address gifts or benefits from foreign governments or the US government itself. The perks offered by the TRUMP meme coin project, though closely associated with the President, do not fall under the strict definition of an "emolument."

However, the President's actions do raise questions about other laws. A certain section of the United States Code explicitly addresses conflicts of interest involving the federal government. This section, known as “Acts affecting a personal financial interest,” is designed to ensure that government employees act in the public’s best interest, free from the influences of their own economic position. The statute generally prohibits federal employees from participating “personally and substantially” in any “particular matter” that would have a “direct and predictable effect” on their financial interests. However, there are exceptions to this statute, including for the President, the Vice President, and members of Congress. This law has been in place since the founding of the Republic and has never been amended despite repeated questioning over the years.

Currently, the President's plans for a private dinner with top meme coin holders are not subject to federal prosecution. However, failing to fulfill these promises could lead to legal action at the state level or through private lawsuits. The Securities and Exchange Commission declared that meme coins are not classified as securities, meaning neither buyers nor holders of meme coins are afforded the protections of federal securities laws. This situation does not bode well for any TRUMP holders who lost money from the depreciating price of the meme coin, as they cannot sue for securities fraud. However, they can make a case by suing for fraud under the five common law principles, particularly if the President’s promised gala dinner and White House tour fall through.

Unlike securities fraud, which is governed by specific laws, common law fraud is a wider legal principle that addresses deceptive actions in various contexts. Its enforcement typically occurs at the state level through judicial rulings rather than federal statutes targeting securities. This type of fraud has five crucial parts. First, someone makes a false statement about a significant fact, and they know it’s untrue. Second, they intend the other person to believe and act based on this false statement. Third, the other person actually and reasonably believes the false statement. Fourth, they act based on that belief. Lastly, this action causes them harm or loss. Private citizens could sue the President if he doesn’t deliver on his promises. If damages are particularly extensive, state attorney generals could also take measures into their own hands.

Painter voiced serious concerns that such market manipulations could precipitate a larger financial crisis. The chronology of the President's dinner announcement sparked deep concerns over unmistakable market manipulation. A week before the announcement, the team behind TRUMP unlocked $300 million worth of new tokens. Given the crypto market’s greater bearish conditions, the greater circulation supply, and the lack of demand for the meme coin, the price naturally went down. This situation prompted many to short the meme coin, expecting a price decline. However, the announcement triggered a surge in buying. The price instantly rose by 50%, and those traders who shorted TRUMP lost their money. To the naked eye, this was a clear example of artificial price inflation. Painter viewed it as another sign pointing to the urgent need for crypto regulation before it unleashes a chain reaction.

The legal classification of meme coins as non-securities, coupled with the exemption of high-ranking officials from conflict-of-interest laws, prompts Painter to warn that this lack of oversight could lead to financial disaster. The potential fallout is significant. Beyond the losses already impacting TRUMP holders, this political involvement in crypto could damage the industry’s future and trigger a confidence bubble, leading to wider financial instability. Painter concluded that the issue is how dangerous this could be for the economy if regulations aren’t implemented, and instead, more speculation is heard. This is a big problem and it can have a systemic effect in the financial system.