Disgraced former pharma executive Martin Shkreli confirmed Wednesday he was involved in the creation of a Trump-branded meme coin called Trumpcoin in a 7-hour X Spaces event. Although Shkreli, who is out on parole after receiving a seven-year sentence in 2018 for securities fraud, claims his financial interests in the project were “nonexistent,” his involvement has raised questions regarding his potential legal culpability. 

The Solana SOL +9.01% -based token, which trades under the ticker DJT, first came to light on Monday after Peter Thiel associate Mike Solana claimed that former President Trump endorsed the project, which was allegedly being spearheaded by his son Baron Trump. Rumors of these official ties caused the token to rally 385% within 24 hours, amassing over $360 million in cumulative trading volume.

That all came crashing down Wednesday after news began to leak that Martin Shkreli, who is best known for once jacking up the price of an HIV treatment by over 4,000%, was linked to the project. Shkreli, who initially denied involvement, later confirmed he was part of the “50-person” team that created the token, allegedly on behalf of Barron Trump. This revelation came only after on-chain sleuth ZachXBT responded to blockchain analysis firm Arkham Research’s $150,000 bounty for information exposing who was behind the effort.

Many unanswered questions remain about the project, such as the extent of Barron or Donald Trump’s involvement, whether influencers like Andrew Tate and Ansem are backers, and Shkreli’s financial incentives. This is particularly difficult to determine, considering that most of the information has come from Shkreli, who is a notoriously unreliable source. DL News reported a Trump insider denied the campaign’s involvement. 

Possible legal consequences for Shkreli 

The Block reached out to several legal experts to get their views on the complicated situation. In short, Shkreli may face legal consequences if he either unwittingly committed securities fraud by launching an investment vehicle or lied about the Trump campaign’s endorsement of the project using the 45th president’s likeness — though it isn’t yet clear whether any crimes have actually been committed.

“The alleged fraud could be any number of things: misrepresenting Trump or Barron, claiming he wasn’t involved when actually being an advisor and/or the creator, lying about who was on the team, etc,” Columbia University Adjunct Assistant Professor of Business Austin Campbell told The Block in a direct message.

“If he lied about his involvement or Barron’s involvement and then flipped his story when publicly exposed, is that securities fraud … or just regular old fraud?” Campbell added. “Lying in commercial affairs need not involve securities to be a crime. Your microwave manufacturer can’t lie to you and tell you it doesn’t need electricity to run (unless that is true).”

MetaLeX creator and crypto legal expert Gabriel Shapiro echoed this point, saying that any securities law implications “depend on the communications and expectations,” or in other words, if there was a clear expectation of profit. It’s an open question whether attempting to monetize attention falls afoul of the law, though the recent trend of “celebrity” memecoins created by artists like Iggy Azalea and Caitlin Jenner “push it more toward potential securities law classification.”

Attorney and Cinneamhain Ventures partner Adam Cochran was the first to point out that Shkreli, if his claims are true, is likely in violation of the terms of his parole. “Shkreli’s 3 year parole terms require him to give full financial statements, and to avoid ‘any self-employment involving access to client money or investments’ (as well as avoiding other crimes),” Cochran posted on social media site X on June 18.

After being convicted of securities fraud and misleading investors about the performance of his hedge funds, MSMB Capital and MSMB Healthcare, Shkreli was granted an early release from federal prison in May 2022 due to good conduct while incarcerated. 

However, it isn’t yet clear whether Shkreli has committed any crimes this time around. Meme coins, a relatively new fad within the crypto industry, have not yet been subject to a Securities and Exchange Commission (SEC) enforcement action, potentially granting market participants a degree of plausible deniability. 

“The fact that he would be triggering limitations on his activities post-release from prison is the least of the problems, in the sense that he'd be doing brand new securities fraud,” University of Kentucky law professor Brian Frye told The Block in an interview. Frye noted that Shkreli’s parole terms limit his involvement in securities markets, and ability to manage other people’s money as well as require extensive financial disclosures. 

Frye added Shkreli’s situation is complicated by the unknown circumstances of the token’s creation. For instance, it isn’t clear whether Shkreli, who claims he would receive a percentage of Barron’s returns rather than profit from the DJT token directly, bought in and plans to sell. 

Both Frye and Enclave Markets’s general counsel Olta Andoni, however, are skeptical of any Trump-family endorsement. “I would doubt the Trump campaign would like to be associated with someone like him,” Andoni said in an email. She added that if Shkreli is indeed running this investment scheme for the financial benefit of Barron “we should welcome the SEC with open arms.”

“But with Martin Shkreli, I guess you just never know,” Frye said. 

In the past, Trump did not hide his contempt for Shkreli. On the campaign trail in 2015, Trump said Shkreli looked like “a spoiled brat” and said, “That guy is nothing. He's zero. He's nothing. He ought to be ashamed of himself,” according to Business Insider. Nonetheless, Shkreli endorsed Trump for president several months later.  

Implications for Trump?

Many have noted that this situation, now garnering wider media coverage, may also have political or legal implications for the Republican presidential candidate. 

“While the argument that memecoins like DJT are securities is weak, the [Security and Exchange Commission] enforcement staff might find this scenario too irresistible to pass up. I wouldn’t be shocked if they opened up an informal investigation just to ask some questions and score political points in the process,” James "MetaLawMan" Murphy told The Block in a direct message. 

No one from the campaign has confirmed its involvement in the project, and Shkreli himself only claims to have overheard Barron discussing Trumpcoin with his father over the phone. 

“The question is: Can the SEC really decide to come down like a hammer on Trump for this, even though they haven't really done anything with respect to a ton of other people who are doing essentially, if not identically, the same thing?” Frye said, adding that an enforcement action would be a “fraught decision” even if “everyone seems to want to have something” on Trump. 

Ajit Tripathi of Polygon noted that Shkreli allegedly encouraged Barron away from discussing the token launch with lawyers. He added that Shkreli seems to think “there are no consequences,” which is largely the case in crypto, considering how few pump and dumps and scams are actually prosecuted. “That's the trouble with unregulated financial markets, they attract greed and all kinds of characters.”

“He's a known fraudster. He seems to think of himself as a fraud artist,” Tripathi said. “He talked about his prison experience with no guilt or compunction as if it were an interesting experience.”

The question is whether the man Trump called a “spoiled brat” is heading there again.