SEC Brings Enforcement Case Involving "Airdrop" Of Securities

A recent settled SEC enforcement action against an ICO issuer (the "Company") and its promoter calls into question the viability of the "airdrop" model of distributing digital tokens to investors. In the ICO context, an "airdrop" generally refers to the widespread distribution of digital tokens to community members either for free or in exchange for performing menial tasks. Whether such a distribution model runs afoul of the federal securities laws has been the subject of much debate in recent months, and the SEC's case provides additional insight into their analysis of the issue. While a narrow path for airdrops may remain, the case will significantly curtail their current use.

By way of background, the fundamental tenet of federal securities regulation in the United States is that every offer or sale of securities must be registered with the SEC or exempt from such registration. There is usually no exemption available when securities are distributed on a wide scale