Trump's crypto ventures raise conflict of interest, insider trading questions

Can existing laws and guidelines around crypto, insider trading and conflicts of interest keep up when the most powerful person in the world is dropping memecoins and promoting DeFi projects?

President Donald Trump’s memecoin launches before his Jan. 20 inauguration and his ties to crypto firm World Liberty Financial are so outside of the bounds of normal presidential behavior as to be completely unprecedented.

Since taking office on Jan. 20, Trump has signed a flurry of executive orders, reshaping global policy within days. Some have direct implications for crypto, including his decision to set up a crypto working group to examine a strategic digital assets reserve and his pardon of Silk Road founder Ross Ulbricht.

Magazine spoke with legal experts Yuriy Brisov of Digital & Analogue Partners in Europe, Joshua Chu of the Hong Kong Web3 Association and Charlyn Ho of Rikka in the US to unpack their professional reactions to how Trump’s first days in office have impacted the cryptocurrency world. This discussion has been edited for clarity and length.

What conflict of interest issues arise when a prominent political figure launches a cryptocurrency token?

Ho (US): I think there are significant conflict of interest issues, which is sometimes a legal issue, or more of an ethics issue. Regardless, it is an issue because Trump has the power to direct crypto policy. Within just a couple of days of him taking office, he’s signed a number of executive orders that are significantly going to affect the way that our crypto and digital assets industry works. So if he has a personal pecuniary benefit arising from his own policies, that’s a conflict of interest.

Is something like a president launching their own memecoin something that’s fathomable in Hong Kong?

Chu (HK): No. It takes an over-the-top character to do something like this. In Hong Kong, or even in Asia-Pacific, we don’t have any particular leaders who are that flamboyant yet. So I do not see it happening. Even if the government were to ever launch their own tokens, I don’t see them going into meme tokens, because memecoins easily attract the criticisms of there being no substance in nature. There’s nothing behind it.

One of the things that is a pride of Hong Kong is the anti-corruption policies. We have seen a number of politicians prosecuted once they’re out of office for the most minute of trespasses — nothing even remotely close to what Trump is doing right now.

How well do existing campaign finance laws address the risks of political figures issuing crypto assets?

Brisov (EU): There are laws in every member state of the EU that regulate political donations. I won’t discuss each of the 24 countries, but in general, there are very strict Anti-Money Laundering and Know Your Customer rules. You have to provide all the information, including source of funds. When political campaigns raise funds, they have to work through all these hurdles. But it seems that through memecoins, you can just forget about it and get money from anywhere, whether it be from terrorists, from North Korea — there are no limits.

In the US, laws like the Foreign Agents Registration Act say that if you’re a foreign person and wish to provide foreign interest on American soil, you need to register. There is also the Federal Election Campaign Act that bans all direct foreign contributions to presidential campaigns. Through memecoins, you can possibly avoid this.

The Trump family’s WLFI bought $2 million worth of MOVE recently around the time that rumors were reported that Elon Musk’s Department of Government Efficiency had been talking to Movement Labs about the plan to run the government on blockchain. Though that’s just a rumor at this stage and likely just a coincidence, would there be specific laws that such a token purchase may violate?

Ho (US): I know that WLFI has been very careful to state that no Trump family member or himself are part of the WLFI board, or are employees. However, if you essentially utilize means to circumvent rules and regulations that implicate, for example, this conflict of interest situation, [that may raise concerns] even though you yourself are not necessarily part of the organization.

Whether or not the actual purchasing MOVE tokens is a violation of law, I’m not positive that there’s a rock solid case on that, but I think it goes to the larger question of, what is the role of a president or what is the role of any political figure? In general, it’s to promote the interests of the people that elected him, not his personal interests.

Chu (HK): Hong Kong is still a city, as much as we want to pride ourselves on being one of the four dragons of Asia. It’s not going to have access to or have as much information on market-moving data as compared to politicians in the US. We have seen this as a huge issue that has been brought up time and again in the US, where Congress has had many debates saying whether congressmen on certain committees should be prohibited from using knowledge that they have to buy stock. Debate was sparked when you have people in the Senate and Congress investing in healthcare-related companies during the COVID outbreaks, where the public is unlikely to have such information.

In Hong Kong, we do have strict market disciplinary rules in place under the Securities and Futures Ordinance. And if you are relying on inside information for trading, you can get into a lot of trouble. That will all depend on the legal definition of inside information and the specific information that they obtain in the course of their office.

Does a pardon affect the legal status of seized and unseized digital assets in a case like Silk Road founder Ross Ulbricht’s?

Chu (HK): The pardon relates to criminal liability, not necessarily to penalties or remedies that have already been applied. So when Ross Ulbricht was arrested and these funds were confiscated, those can’t be unconfiscated or given back to him just by the nature of the pardon.

Hong Kong’s treatment of these assets is quite similar to most common law jurisdictions. Usually, in most criminal proceedings, various assets are seized and then used as prosecution evidence. Immediately after sentencing, when the case is closed, you have what we call the order for disposal of evidence.

Now, in the Ulbricht case, this is interesting as the Coinbase executive allegedly located assets that are tied to Ulbricht but were not part of the original prosecution case.

There’s a huge significant time lag. Keep in mind, this guy has been in jail for a long time. The retrospective nature of doing law enforcement is always quite dangerous because there are all sorts of issues that come into play. At the end of it, yes, it might be tied to him, but is tied to a specific illicit activity? Not all assets tied to a person are gained from illicit activity. So there’s a number of steps that have to be proven in order for proper adjudication to be had.

Ho (US): In my opinion, if these funds are criminal funds that have been involved in illicit activity, just because they haven’t been seized in the past, they could be and should be reviewed to see if they are confiscatable by the government. Ross Ulbricht himself has been pardoned, so the ability to confiscate any gains that he made would have to be reviewed in light of the specific nature of that pardon. I think the pardon should be separated out from whether or not the funds can be confiscated, because there’s a timing issue here. If they were just recently discovered, just because he’s been pardoned now, lawyers on both sides can argue, but they should be treated as related but separate issues.

Trump’s executive order demands AI free of “ideological bias.” How do different regions approach AI regulation, and what impact does this have on innovation and free speech?

Ho (US): In the US, we have the First Amendment. So the government cannot restrict freedom of speech. I would imagine that an executive order to free AI of certain unwanted ideologies would push against the boundaries of First Amendment rights. A private platform is not bound by the First Amendment. It’s a legal nuance that people often kind of gloss over. But if the government is pressing upon or requiring that a platform suppress certain news that could very well be a constitutional violation. If he really means we’re going to suppress or purge or not let certain companies thrive because of their ideological leanings, that would very well be quite a constitutional issue.

The EU has taken a more prescriptive approach to regulating AI through the EU AI Act. I’ve read articles that a lot of AI developers are trying to not be in the EU because of the restrictions. 

In the US, one of the very first things Trump did was rescind the Biden executive order and one of the reasons was because of the competition with China that if the US AI companies are constrained by overregulation, then we will lose in that race. The new Trumpexecutive order on AIkind of promulgates a much more innovation-friendly or business-friendly approach. The counterpoint is the dangers of AI and how you balance innovation and regulation.

Chu (HK): There has actually been a lot of push for AI regulations globally per se. Hong Kong, the legislation that we have pushed for, of course, says AI ought to be regulated with there being exemptions. We actually have what we call carve-out provisions that say that a lot of the restrictions will not apply if it basically is going to suffocate business innovation. And that’s one of the key unique features of the regulations in Hong Kong compared with the EU.

Brisov (EU): What I think really important here is that AI is only making its first steps in emerging with the law.

Now that AI is developing really quickly, we see that there are many issues. There is a very interesting case, it’s called Truth Terminal. This guy, he unfolds the issue, first in history, whether a thing can be liable for what it does.

Before we had a person and a thing — res and persona from the Roman law. We also have natural persons like humans and legal bodies like companies. If AI is not merely an AI agent, but as it is in the Truth Terminal case, it is more of an AI actor that acts on its own free will, and it does what it wants. It buys and sells crypto, it raises capital, it makes money, then it has to pay taxes. These aspects of AI are not covered in any law at all.

We can probably use our legal structures that we have today to operate and enforce AI to pay taxes or to be liable. If we connect AI with a DAO that is run by smart contracts — and for instance, Wyoming law allows this legal structure. And if on the other end of this smart contract will be an AI, this will be an AI registered as an LLC. And then it will have to pay taxes, it will know how to pay taxes, the taxes can be enforced and other liabilities also can be enforced. And this AI can also get profit, find shareholders. It will be a legal solution. You know, it’s just a slot machine solution right now but I’m sure we can find more eloquent solutions with more time.