The SEC has classified airdrops (free token giveaways) as illegal methods of distributing securities in a charge against Hydrogen Technology Corporation, its former CEO Michael Ross Kane and Moonwalkers CEO Tyler Ostern.
The SEC's lawsuit alleges that in 2018, the now-defunct New York-based company Hydrogen created the Hydro token and then publicly distributed it through airdrops, rewards to individuals for promoting the token, employee rewards and direct sales on cryptoplatforms. The Commission alleges that after distributing the token, Hydrogen hired a South African firm, Moonwalkers, to create a false appearance of market activity for the Hydro token using specialized software. As a result of this manipulation, Hydrogen allegedly made a profit of more than $2 million.
"Companies cannot escape the application of securities laws by arranging unregistered offers and sales of their securities as rewards, compensation or other similar methods," said Carolyn M. Welshahans.
The SEC requested that the defendants be barred from engaging in certain activities, including the distribution of securities. The court also ordered them to pay fines, the full amounts of which have not yet been agreed upon.
Last week, it became known that one of the crypto industry's most high-profile court cases over the issue of cryptocurrency recognition as a security (SEC v. Ripple Labs) could be dealt with in an expedited manner.