Trump’s Meme Coin Contest Legal, But Fraud Risks Loom
The US President raised eyebrows once again after announcing that top holders of his TRUMP meme coin would have the chance to have an exclusive dinner with him or a VIP tour of the White House. The decision to use public office for private gain drew scrutiny over whether the President was committing Constitutional violations.
In a conversation with BeInCrypto, former George W. Bush Ethics Lawyer Richard Painter explained that Trump did not violate the US Constitution but could be sued for fraud if he fails to fulfill his promises by the May deadline.
Initial Announcement and Public Reaction
If President Trump’s involvement in crypto ventures raised ethical concerns before, they’ve now turned legal following his recent announcement regarding the trading of his meme coin.
Last week, Trump announced a contest in which the top 220 holders of TRUMP would be invited to an exclusive gala dinner to meet the President, while the top 25 holders would also get a VIP tour of the White House.
The public has until May 12 to accumulate tokens beyond the 220 threshold, while the dinner is set to take place on May 22. The announcement immediately raised criticism over corruption and market manipulation.
A recent report, co-authored by Painter, indicates that as of mid-March, President Trump’s cryptocurrency holdings, including TRUMP and WLFI, were valued at $2.9 billion, constituting about 37% of his total wealth. The launch of the USD1 stablecoin by World Liberty Financial would drive further growth in the value of these assets.
Though visibly unethical, Trump’s actions are not legally liable.
Circumventing Constitutional Emoluments Clauses
Despite public and legislative criticism and scrutiny from bodies like the Senate Banking Committee, President Trump has avoided legal challenges so far. Though riddled with ethical questions, his crypto ventures have successfully skirted legal and constitutional breaches of trust.
Under the US Constitution, the Foreign and Domestic Emoluments Clauses are anti-corruption provisions designed to ensure the integrity and independence of individuals holding positions of public trust within the government.
They aim to prevent external and internal influences from potentially compromising the judgment and loyalty of government officials. However, these clauses primarily address gifts or benefits from foreign governments or the US government itself.
“[Trump’s] using the presidency to make money for himself off his meme coin and auctioning off White House tours and a dinner with the President in his official capacity. If foreign governments get involved, that would violate the emoluments clause of the Constitution. I haven’t seen that yet, but they could. But it’s clearly corrupt,” Painter told BeInCrypto.
In other words, the perks offered by a private meme coin project, though closely associated with the President, wouldn’t fall under the strict definition of an “emolument.”
Trump’s recent announcements raise questions about other laws, but his presidential status offers him a degree of legal insulation.
Conflict of Interest Laws and Presidential Exemption
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.
If a person violates this statute, they face criminal and civil penalties, ranging from substantial fines to time served in prison. However, there are exceptions to this statute.
“The financial conflict of interest statute does not apply to the President, the Vice President, and members of Congress. It’s a crime for everybody else in the government. That’s why the members of Congress are trading in stocks, and President Trump can do this. This is a big problem, and I think we may need to amend that criminal statute,” Painter explained.
This law has been this way since the founding of the Republic. The statute’s exceptions have never been amended despite repeated questioning over the years.
Currently, Trump’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.
Meme Coins and Securities Regulations
A month after Trump launched his meme coin, the SEC declared that meme coins are not classified as securities.
As a result, 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 a result, they cannot sue for securities fraud.
However, they can make a case by suing for fraud under the five common law principles, particularly if President Trump’s promised gala dinner and White House tour fall through.
Common Law Fraud and Potential Lawsuits
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 in the United States 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 President Trump if he doesn’t deliver on his promises. If damages are particularly extensive, state attorney generals could also take measures into their own hands.
“If there is any material misrepresentation made or a lie being told by anyone in the sale of a meme coin, there could be a private right of action for fraud and the state attorney general could move in on that and file an enforcement action. I do not know that there’s enough evidence to bring a fraud claim, but this is starting to move in that direction,” Painter told BeInCrypto.
Ultimately, legal action regarding the dinner depends on whether President Trump fulfills his promise. Meanwhile, Painter voiced serious concerns that such market manipulations could precipitate a larger financial crisis.
Market Manipulation and Risk of Financial Crisis
The chronology of Trump’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.
Naturally, 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 Need for Crypto Regulation
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.
“Crypto is unregulated, it’s speculative. The assets are extremely volatile, and we could have a financial crisis coming out of crypto if we don’t get a handle on this. And what I see is the President, members of his cabinet, members of Congress trading in crypto, making money off crypto, and taking campaign contributions from the crypto industry instead of regulating it,” Painter said.
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.
“For five or six years, I’ve urged Congress to act and to add crypto to the definition of a security. I think it’s really destroys the credibility of our government and undermines public confidence. This is not going to end well. The issue is how dangerous this could be for the economy if we don’t regulate this, and [instead] we just hear more and more speculation. This is a big problem and it can have a systemic effect in the financial system,” Painter concluded.
Although Trump’s meme coin promotion isn’t currently facing federal prosecution, the ethical violations and potential for market manipulation are substantial. Ultimately, legal action will depend on whether Trump follows his original promises.
But in the greater scheme of things, if regulations aren’t implemented, this unchecked political involvement in crypto could lead to broader financial instability and a decline in public trust.
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