Just 20 minutes post-launch, the market cap of Welch’s cryptocurrency plummeted from $490 million to $41 million, leading to suspicions of a potential rug pull. This term refers to a scenario where cryptocurrency creators sell off their stock, causing the market price to crash, leaving investors with nearly nothing.

Welch has denied these allegations, and at this point, authorities have not initiated any formal investigation. Nonetheless, a legal firm has outlined possible charges Welch might face if the authorities opt to investigate the failed launch.

Yuriy Brisov, a partner at Digital and Analogue Partners, explained that the SEC might bring civil charges for security fraud if it can be shown that there was deceit or misrepresentation in the sales of securities, contingent on it meeting the standards of the Howey test.

Additionally, the Department of Justice (DOJ) could consider criminal charges, like money laundering or wire fraud, should there be evidence of financial wrongdoing.

Regarding the potential of Welch’s actions qualifying as insider trading, Brisov told Coin Telegraph: “Insider trading traditionally involves trading securities based on material, non-public information, breaching a duty of trust or confidence.”

“In the context of cryptocurrencies, the legal framework is still evolving. If Welch’s team possessed non-public information about the token’s launch or had pre-arranged strategies to sell significant portions of the supply, leading to the token’s price collapse, such actions could be scrutinized under fraud or market manipulation statutes.”

Earlier this week, Welch took to X to deny insider trading accusations, stating: “Team hasn’t sold one token and not 1 KOL was given 1 free token.”

Despite her claims, data reveals over 80 wallet addresses that had not purchased tokens, suggesting they received tokens before the launch. All these accounts reportedly sold their shares, making profits ranging from $10,000 to $365,000.

While no official investigations have commenced, the US DOJ recently engaged in a case where the founder of the Bitcoin Fog crypto mixer received a 12 and a half year prison sentence.