The US Securities and Exchange Commission (SEC) has filed charges against The Hydrogen and its market maker Moonwalkersfor for alleged involvement in unregistered securities and artificially inflating the token price.
The SEC charged the two companies and the two executives with violating the registration, anti-fraud and market manipulation provisions of the securities laws. The securities regulator also called for permanent injunctive relief, conduct-based injunctions, surrender with prejudice interest, and civil penalties, among other remedies.
Misleading picture of Hydro’s market activities
According to the official press publicationThe Hydrogen Technology Corp., its former chief executive officer, Michael Ross Kane, and Tyleroster, the CEO of Moonwalkers Trading Ltd., are being sued for violations relating to the sale of tokens that the SEC has identified as securities to a market directed, which is artificially inflated bots.
The agency said the project’s native “Hydro” tokens were initially distributed to investors via airdrops, bounty programs and as employee compensation.
The SEC complaint further alleges that following the token distribution in October 2018, Kane and Hydrogen boarded South African firm Moonwalkers in order to “create the false appearance of robust market activity” for the token by using their customized trading software or used their “bot” and then sold it in this artificially inflated market for profit on behalf of Hydrogen. The agency estimates that Hydrogen generated over $2 million as a result.
In a statement, Carolyn M. Welshhans, deputy director of the SEC’s Enforcement Division, said:
“Corporations cannot circumvent federal securities laws by structuring the unregistered offerings and sales of their securities as bonuses, compensation, or other such methods. As our enforcement efforts demonstrate, the SEC will enforce the laws prohibiting such unregistered fundraising programs to protect investors.”
While Hydrogen believes the SEC’s case is “completely baseless” and plans to take the legal route, the latest complaint could address the question of the legality of airdrops and bounty campaigns.
Can airdrop tokens be securities?
An airdrop is a free distribution of tokens from a specific project, with the main goal of raising awareness. Bounty campaigns are also used for promotion, but are considered more cost-effective. The SEC crackdown on ICOs, classifying them as sales of securities, dates back to 2018. Since then, there has been significant debate over the fate of airdrops and bounty campaigns.
Banking and Administrative Law Attorney Todd Phillips stressed that the defendants in the Hydro case sold tokens on the secondary market after the airdrop. Earnings expectation, as buyers in the secondary market expected prices to rise as Hydrogen repeatedly touted the company’s profitability, could be a determining factor in the Howey test.
Phillips noted that the Howey test would not have been satisfied if Hydrogen had not sold the tokens after airdropping them.
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Source: Crypto News Deutsch