Intro
Nobody has posted about this yet, so I might as well. I suspect that this issue is more relevant to securities law, but it does have some relation to the core issues we examine in business organizations. Also, this is a developing story. I do not have the complete picture, and the issues and facts may change as more information becomes public knowledge.
In short, this scandal can demonstrate what a business model with a dearth of regulation and dominated by unsophisticated investors looks like.
The Background
Haliey Welch, who became internet famous after her viral “Hawk Tuah” video, launched a memecoin called Hawk Tuah coin this week. A memecoin is a cryptocurrency based on some type of meme, and so it is a hybrid form of entertainment and investment.[1] She is not the only celebrity or quasi-celebrity to do so, with others including Caitlyn Jenner and Iggy Azalea.[2] Memecoins do not represent anything “real,” they have “[n]o utility. No roadmap. No promises. No expectation of financial return. Just 100% memes.” [3]
At the outset of launch on 04 December, Hawk Tuah coin was highly valued with a market cap of nearly $500 million. However, by the afternoon of 05 December, the market cap fell to $25 million.[4] The sharp drop has led many people lose a significant amount of money. Investors are outraged and may seek legal action against Welsh. Welsh denies any wrong-doing and argues that she did no sell any of her coins to cause a pump and dump.
Here is a Forbes Article reporting on the event.
Pump and Dump
Many are accusing Welsh of performing a “pump and dump.” A pump and dump is when someone (often a majority shareholder or a higher-up within the company) artificially increases the value of a share. They can do so by either buying many shares themselves to raise the price, or publishing false information to mislead investors into thinking the company is valuable. Once the share price increases, the perpetrator sells everything they have, causing the share to plumet in price. They manage to sell their shares at the artificially high price, but the others are now stuck with the share at it’s corrected low price.
This practice is illegal, but occurs frequently within the less-than-regulated realm of cryptocurrencies.[5]
Application to Corporate Law
As I mentioned above, this is more of securities issue, but this event can inform us on corporate law issues. I submit that this memecoin fiasco raises the question of whether or not conventional lassez-faire style capitalism is compatible with unsophisticated investors.
As Prof. Festinger has mentioned on multiple occasions, there is greater public participation in business investing now than there was in the past. It went from being a rare thing reserved only for financial elites, to becoming a common practice, even for people who are not that wealthy. You cannot watch a hockey game nowadays without being bombarded with commercials for various investment and broker platforms. All it takes to be an investor nowadays is an app and a pair of thumbs. To steal and repurpose a quote from Blazing Saddles, many people nowadays are simple investors. They are the people of the internet. The common clay of the new wild west of cryptocurrency. You know… morons.
At various points in the class, Prof. Festinger also talks about how corporations are sociopaths with a mindset that “creed is good.” Prof. Balkan’s article and his guest lecture also identifies rise of the laissez-faire style of capitalism where everyone is free to do whatever they wish free of regulation. However, the “creed is good” mentality comes with an assumption that the greed is constructive; it is well executed greed. The assumption works best when people are making proper investment decisions. The assumption falls apart when there is reckless and fraudulent greed preying upon the ignorant.
This is not a novel phenomenon. In his article, Prof. Balkan identities a similar crisis in 17th century England where more than seventy Crown companies failed in a span of less than ten years due to reckless speculation and fraud. The commissioner of trade wrote in 1696 that the corporate form had been “wholly perverted” by promoters who sold stock “to ignorant men, draw in by the reputation, falsely raised and artfully spread, concerning the thriving state of the stock.” [6] This quote perfectly describes the Hawk Tuah fiasco.
Conclusion
In short, I thought that this recent event can help us reflect on the some of the core concepts we learned in class. This scandal forces us to consider current business practices and whether or not they are sustainable with evolving technology and the evolving cultural view of investment.
I am curious if anyone has any thoughts on this. I am not at all a business-minded person, so I cannot say that I truly know what the bigger picture here, so please let me know if you think I am off base.
Citations:
[1] https://www.investopedia.com/meme-coin-6750312
[2] https://coinmarketcap.com/academy/article/from-jenner-to-azalea-the-rise-of-celebrity-memecoins
[3] https://www.investopedia.com/meme-coin-6750312
[5] https://www.investopedia.com/terms/p/pumpanddump.asp#citation-1
[6] Bakan, Joel. “Reflection: Corporate Capitalism’s Moral Lack.” Business History Review 98, no. 1 (2024): 301–24. https://doi.org/10.1017/S0007680523000442.k, p. 305.
All I know is that it’s time for the victims to talk tuah lawyer