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DeFi Education Fund and Clothing Company File Lawsuit Against SEC Regarding Unwritten Airdrop Securities Regulation
The DeFi Education Fund, a crypto advocacy organization, along with Texas-based clothing company Beba, initiated legal proceedings against the Securities and Exchange Commission (SEC) on Monday. Their objective is to clarify that airdrops should not be regarded as securities.
The plaintiffs criticized the SEC’s “aggressive approach” to overseeing token developers and other stakeholders through enforcement measures.
Consequently, Beba is seeking a judicial order to protect its operations from the SEC’s “unlawful” ongoing enforcement actions.
“Every single one of us in this industry, including the DeFi Education Fund, is harmed by their overreach,” stated Miller Whitehouse-Levine, CEO of the DeFi Education Fund. “We are requesting the court to put a stop to the SEC’s arbitrary misuse of its authority.”
Lawsuit Challenges SEC’s Approach to Airdrops and Token Distribution
The plaintiffs assert that the SEC specifically targets companies involved in digital assets. The agency enforces an informal guideline that classifies most digital assets, including airdrops, as securities, according to the lawsuit.
Airdrops entail the distribution of complimentary tokens as part of a promotional strategy. Beba is seeking a judicial determination that its $BEBA tokens do not meet the criteria for investment contracts. It also aims to establish that the distribution of these tokens at no cost does not qualify as a securities transaction.
Moreover, the company clarified that it provides $BEBA tokens free of charge to prospective customers. These tokens can then be utilized to access exclusive products at reduced prices.
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“Since $BEBA tokens were distributed for free, there was no ‘investment of money’ by the recipients of the airdrop, a necessary component of the Supreme Court’s criteria for determining the existence of an investment contract,” Beba asserts.
Legal Challenge Calls for Transparent Rulemaking on Crypto Regulations
Currently, both parties are urging the court to apply the Administrative Procedure Act to the SEC. This act requires federal agencies to develop new regulations in writing and through a transparent process. This would facilitate public input and awareness regarding the rules they are expected to follow.
The lawsuit arises as enforcement actions within the crypto sector have markedly increased over the past two years.
Nevertheless, some Republican lawmakers have expressed concerns regarding Chairman Gary Gensler’s approach, highlighting potential repercussions for innovation and American competitiveness.
Despite this, the SEC continues to intensify its enforcement activities. In 2023 alone, the agency initiated 46 enforcement actions related to crypto, representing a 53% rise from the prior year.
In June, both Coinbase and Binance, major entities in the cryptocurrency market, faced enforcement actions.
It is expected that the SEC will maintain its proactive stance on crypto regulation in 2024, likely relying significantly on enforcement actions to uphold regulatory standards.
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