Initial Coin Offerings

A recent settled SEC enforcement action against an ICO issuer and its promoter calls into question the viability of the “airdrop” model of distributing digital tokens to investors. 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.
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In a terse press release issued July 26, 2018, the Swiss Financial Market Supervisory Authority (“FINMA”) announced that it has launched enforcement proceedings against an ICO issuer based on evidence that the company may have “breached financial market law.” According to FINMA, the proceedings focus in particular on possible breaches of Swiss banking law resulting from the potentially unauthorized acceptance of public deposits. FINMA noted that, in the context of its ICO, the subject company “accepted funds amounting to approximately one hundred million francs from more than 30,000 investors in return for issuing EVN tokens in a bond-like form.”
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While ICO issuers have understandably been focused recently on the latest pronouncements from the SEC and other regulators, a second group of potential litigants has largely avoided notice. Seeing a potential bonanza, private plaintiffs law firms have become aggressive in soliciting disgruntled investors as clients and filing lawsuits against issuers of digital tokens.
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