Cawthorn: 'Smoking gun' on ethics violation, possible cryptocurrency crimes, experts say

ASHEVILLE - An overdue financial disclosure form appears to provide the "smoking gun" of an ethics violation by Rep. Madison Cawthorn and might indicate criminal activity, according to law, finance and ethics experts.

An ethics expert with the watchdog Campaign Legal Center and a director of the University of California, Los Angeles, Lowell Milken Institute for Business Law and Policy, reacted May 31 to a past-due financial transaction report recently filed by the Western North Carolina congressman.

The "Periodic Transaction Report" comes a week after the House Ethics Committee announced it would investigate Cawthorn's relationship with a staffer and the allegation he "improperly promoted a cryptocurrency in which he may have had an undisclosed financial interest."

Cawthorn's report, which was due no later than February but was submitted months after that, along with a story by the Washington Examiner, showed the Henderson County Republican using his position for personal gain, said Kedric Payne, CLC's vice president, general counsel and senior ethics director.

Cawthorn bought $100,001 to $250,000 of the LGB meme cryptocurrency on Dec. 21, according to his report.

“Cawthorn's late transaction report appears to be the smoking gun in the Ethics Committee's investigation," Payne said. "The disclosure confirms that he bought it on Dec. 21, and it is known that he promoted it in a Dec. 29 Instagram post."

Cawthorn spokesperson Luke Ball declined to comment, except to reference a statement sent after the May 23 announcement of the ethics investigation, which called the probe a formality and said Cawthorn welcomed the opportunity to prove he did nothing wrong and was "falsely accused by partisan adversaries for political gain."

Cawthorn, a first-term congressman who lost his May 17 primary, has been dogged by multiple scandals and missteps, including being charged with two criminal misdemeanors, calling Ukrainian President Volodymyr Zelenskyy a "thug" and facing blowback after claiming Washington Republicans engaged in cocaine use and orgies. 

More:Cawthorn loses ruling over possible insurrection disqualification for future office

The ethics investigation came after calls by anti-Cawthorn super PAC Firemadison.com and GOP Sen. Thom Tillis for a probe into issues such as potential insider trading by the congressman.

More serious than ethics violations are the alleged use of non-public information for stock purchases and market manipulation by Cawthorn, as reported by the Examiner. Those would rise to the level of crimes and are typically investigated by the federal Securities and Exchange Commission and the Justice Department.

In 2020, the FBI launched a probe into business dealings of then Intelligence Committee Chair Sen. Richard Burr after the North Carolina Republican sold off his own stocks in travel companies, which just weeks later would suffer decimating pandemic losses. The investigation was closed in January 2021.

Democratic House Speaker Nancy Pelosi has faced criticism for her opposition to banning stock purchases by members of Congress and their spouses, after her disclosure report showed her husband in March bought $2.2 million of stock in Tesla, an electric vehicle and solar panel company that spends hundreds of thousands of dollars annually lobbying the federal government.

Here are details of Cawthorn's activities involving LGB, according to his disclosure report, Examiner reporting and social media posts:

• Cawthorn was pictured holding an LGB coin button and posing with “LGB coin ringleader” James Koutoulas on Dec. 5.
• Cawthorn disclosed that he purchased between $100,001 to $250,000 worth of LGB on Dec. 21.
• At a Dec. 29 party Cawthorn posed with Koutoulas, posting the picture on Instagram that evening along with: "LGB legends. ... Tomorrow we go to the moon!"
• NASCAR driver Brandon Brown announced Dec. 30 that the coin would be the primary sponsor of his 2022 season, causing LGB's value to spike by 75%. Koutoulas was directly involved in negotiating the deal between LGB and Brown, according to Brown's statement.
• Cawthorn disclosed that he sold a portion of his LGB holdings on Dec. 31 for between $100,001 and $250,000.
• NASCAR rejected the sponsorship Jan. 4. By the end of January the market cap for LGB was $0.

Responding May 31 to Citizen Times questions, Koutoulas, an attorney and CEO of Typhon Capital Management, said the cryptocurrency did not qualify as a security and therefore would not be subject to insider trading laws. 

"Bitcoin is generally considered a commodity. Meme coins are digital collectibles not commodities," he said.

Koutoulas also said there was no insider trading because the NASCAR deal was public knowledge.

"I was in Brandon’s pit in LGB merch in November and...Brandon was at Puerto Rico crypto week in December talking about the coin," he said in a LinkedIn message.

But Andrew Verstein, co-director of UCLA's Lowell Milken Institute for Business Law and Policy, said his hypothesis based on "numerous cryptocurrencies that look like Let's Go Brandon" is that the SEC would consider it a security.

Even if it is not, prosecutors still might take interest if it looks like someone used non-public information, he said.

"If you do something really that seems like fraud, and it doesn't involve a security, a federal prosecutor can still bring that case."

As for the idea that the open conversations about a possible deal constituted public knowledge, Verstein called that "laughable" since the key piece of information was whether "they had consummated the deal," something the public did not know, he said.

Koutoulas pushed back against accusations of "pump and dump" scheme, in which someone exaggerates a market value then sells large quantities quickly.

"Madison committed to buying the coin at market price in early December," before the sponsorship announcement, he said. "(Then) he smartly took some profits after the announcement when no one had any idea NASCAR was going to revoke it."

Verstein said such market manipulation is harder to know or prove because it would have to be shown Cawthorn, while promoting LGB, did not actually have faith in it. 

"It doesn't become a securities fraud unless you express confidence in the coin you did not have or you knew things about the stock that you did not disclose."

But trading in such cryptocurrencies can amount to a type of "ordinary graft," he said, since the those buying them generally do not see long-lasting value and are looking to unload them, often at the expense of the buyer.

"These issues here are not black and white. They are gray. But they are gray in a way that honorable people wouldn't be pushing them in this way," Verstein said.

Joel Burgess has lived in WNC for more than 20 years, covering politics, government and other news. He's written award-winning stories on topics ranging from gerrymandering to police use of force. Got a tip? Contact Burgess at jburgess@citizentimes.com, 828-713-1095 or on Twitter @AVLreporter. Please help support this type of journalism with a subscription to the Citizen Times.