The Securities and Exchange Commission says a court should deny a motion to stamp out an investigative subpoena to probe whether a conservative memecoin is a security.
The agency subpoenaed Miami-based hedge fund manager James Koutoulas, who is also a trustee of the LGBcoin Foundation, in January. After the agency issued the subpoena earlier this year, Koutoulas sued the SEC, arguing that LGBcoin isn’t a security and so doesn’t violate securities laws. But the SEC argued that Koutoulas's challenge to its investigation lacked enough merit to quash the subpoena.
“Koutoulas’s only legal argument – that the Commission lacks jurisdiction because LGBcoin ‘is not a security’ – is so premature as to be irrelevant to the Commission’s authority – at this early stage – to investigate possible securities law violations via an administrative subpoena,” the SEC said.
If the investigation were to lead to charges against Koutoulas or LGBcoin, then he could make his argument, the agency said.
“But he is not entitled to ignore the Commission’s subpoena simply because he believes LGBCoin does not qualify, nor is he entitled to a mini-trial at this preliminary juncture, wasting time and resources to litigate a determination that the Commission has not yet made,” the agency said.
In a statement to The Block, Koutoulas said he would fight the subpoena, "all the way to the Supreme Court if needed."
Communications with high-profile conservatives sought
Among other information sought in the subpoena, the SEC said it wanted communications between Koutoulas and promoters of the token, including conservative media personality Candace Owens and former North Carolina congressman Madison Cawthorn. Koutoulas maintains that Cawthorn and Owens were not paid for their public endorsements.
Cawthorn, who lost the Republican nomination for re-election to a second term, received a sharp reprimand from the House Ethics Committee last year for his part in promoting the token, and was ordered to pay fines and donate proceeds to charity.
The token is also subject of a class action lawsuit that names Koustoulas, among others, as defendants, alleging a pump-and-dump scheme, in which high-profile conservatives were given tokens and inside information in return for endorsing LGBcoin.
The SEC has a history of enforcement actions against celebrities who endorse unregistered securities, including in crypto. Last October the regulatory agency settled with Kim Kardashian, with the reality TV star and mogul paying a $1 million fine and gave up $260,000 from the promotion without admitting or denying the findings.
But Koutoulas claims the SEC has targeted LGBcoin due to its ties to conservative politics, arguing in his lawsuit against the SEC that, “LGBcoin DeFi community is politically opposed to the administration.”
“If the Commission has its way in this case, it can give LGBcoins a death sentence merely by classifying it as an unregistered security,” Koutoulas said in the lawsuit.
The token gets its name from a 2021 political meme that started after “F*** you, Biden” chants broke out during a televised interview with NASCAR driver Brandon Brown in 2021. A reporter suggested they were saying “Let’s Go Brandon.”
The SEC also sought communications between the LGBcoin Foundation and Brown, who signed a sponsorship deal with the token issuer only for NASCAR to nix the deal.
UPDATE: With comment from Koutoulas and information about the class action lawsuit alleging a pump-and-dump scheme around LGBcoin.
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