SEC v. Eric Zhu, No. LR-26223, Middle District of Louisiana (Jan. 16, 2025) — Press Release

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26223 / January 16, 2025 Securities and Exchange Commission v. Eric Zhu, No. 3:25-cv-00054 (M.D.L.A. filed Jan. 16, 2025) SEC Charges New York Blockchain Engineer with Perpetrating “Rug Pull” Fraud The Securities and Exchange Commission today charged New York blockchain engineer Eric Zhu with perpetrating a fraudulent scheme to defraud investors in the “Game Coin” token (“GME”), a crypto asset that was offered and sold as a security by Game Coin, LLC and its founders. As alleged, Zhu was an experienced blockchain engineer, who was hired to perform coding work for GME. The SEC alleges that GME was offered and sold to the public through a crypto asset trading platform that facilitates the creation and operation of so-called liquidity pools for trading crypto assets. According to the SEC’s complaint, a person who deposits a crypto asset token pair (i.e., liquidity) into a liquidity pool receives liquidity provider tokens (“LP tokens”). The SEC alleges that, absent safeguards, the holders of LP tokens can, without warning, withdraw liquidity from a liquidity pool, sell significant amounts of crypto assets into the pool and cause losses to investors. Such trading behavior is commonly known in the crypto asset industry as a “rug pull.” The SEC alleges that Game Coin and its founders represented to investors in publicly-available social media posts that “liquidity” was “locked,” which in the parlance of the crypto asset industry, conveyed that LP tokens were “locked” and could not be used by the issuers or other insiders to withdraw liquidity in rug pull-like fashion. Yet, according to the SEC’s complaint, as part of the mechanics of the offer and sale of GME, certain LP tokens accrued to a blockchain address under Zhu’s exclusive control. As alleged, Zhu kept these LP tokens unlocked and used them to engage in a rug pull. In so doing, Zhu misappropriated crypto assets worth approximately $553,000 and caused a decline in the price of GME of approximately 12%. The SEC’s complaint, filed in the U.S. District Court for the Middle District of Louisiana, charges Zhu with violating the anti-fraud provisions of Sections 17(a)(1) and (a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. Without admitting or denying the allegations in the SEC's complaint, Zhu agreed to pay disgorgement and prejudgment interest of $672,992, and a civil penalty of $150,000. The settlement is subject to court approval. The SEC’s ongoing investigation is being conducted by Alex Charap of the Division of Enforcement’s Crypto Assets and Cyber Unit, and Sarah Belter-Pylant of the Miami Regional Office, with assistance from trial attorney Russell Koonin of the Miami Regional Office and analysts Sejal Bhakta and Nicholas Bohmann of the Division of Enforcement’s Crypto Assets and Cyber Unit. The investigation is being supervised by Jessica M. Weissman, Teresa J. Verges, and Glenn S. Gordon of the Miami Regional Office.

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26223 / January 16, 2025 Securities and Exchange Commission v. Eric Zhu, No. 3:25-cv-00054 (M.D.L.A. filed Jan. 16, 2025) SEC Charges New York Blockchain Engineer with Perpetrating “Rug Pull” Fraud The Securities and Exchange Commission today charged New York blockchain engineer Eric Zhu with perpetrating a fraudulent scheme to defraud investors in the “Game Coin” token (“GME”), a crypto asset that was offered and sold as a security by Game Coin, LLC and its founders. As alleged, Zhu was an experienced blockchain engineer, who was hired to perform coding work for GME. The SEC alleges that GME was offered and sold to the public through a crypto asset trading platform that facilitates the creation and operation of so-called liquidity pools for trading crypto assets. According to the SEC’s complaint, a person who deposits a crypto asset token pair (i.e., liquidity) into a liquidity pool receives liquidity provider tokens (“LP tokens”). The SEC alleges that, absent safeguards, the holders of LP tokens can, without warning, withdraw liquidity from a liquidity pool, sell significant amounts of crypto assets into the pool and cause losses to investors. Such trading behavior is commonly known in the crypto asset industry as a “rug pull.” The SEC alleges that Game Coin and its founders represented to investors in publicly-available social media posts that “liquidity” was “locked,” which in the parlance of the crypto asset industry, conveyed that LP tokens were “locked” and could not be used by the issuers or other insiders to withdraw liquidity in rug pull-like fashion. Yet, according to the SEC’s complaint, as part of the mechanics of the offer and sale of GME, certain LP tokens accrued to a blockchain address under Zhu’s exclusive control. As alleged, Zhu kept these LP tokens unlocked and used them to engage in a rug pull. In so doing, Zhu misappropriated crypto assets worth approximately $553,000 and caused a decline in the price of GME of approximately 12%. The SEC’s complaint, filed in the U.S. District Court for the Middle District of Louisiana, charges Zhu with violating the anti-fraud provisions of Sections 17(a)(1) and (a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. Without admitting or denying the allegations in the SEC's complaint, Zhu agreed to pay disgorgement and prejudgment interest of $672,992, and a civil penalty of $150,000. The settlement is subject to court approval. The SEC’s ongoing investigation is being conducted by Alex Charap of the Division of Enforcement’s Crypto Assets and Cyber Unit, and Sarah Belter-Pylant of the Miami Regional Office, with assistance from trial attorney Russell Koonin of the Miami Regional Office and analysts Sejal Bhakta and Nicholas Bohmann of the Division of Enforcement’s Crypto Assets and Cyber Unit. The investigation is being supervised by Jessica M. Weissman, Teresa J. Verges, and Glenn S. Gordon of the Miami Regional Office.