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Homeweb3.0Crypto Lobbying Groups Want a Waco Judge to Force the SEC to Define Token Airdrops

Crypto Lobbying Groups Want a Waco Judge to Force the SEC to Define Token Airdrops

Oct 29, 2024 am 09:14 AM
SEC lawsuitCrypto lobbying groups token airdrops

Washington D.C.-based crypto lobbying firms Blockchain Association and the Crypto Council for Innovation have filed a “friend-of-the-court” brief supporting an ongoing lawsuit against the U.S. Securities and Exchange Commission looking for proactive clarity on token airdrops.

Crypto Lobbying Groups Want a Waco Judge to Force the SEC to Define Token Airdrops

Crypto lobbying firms Blockchain Association and the Crypto Council for Innovation have filed a “friend-of-the-court” brief in support of an ongoing lawsuit against the U.S. Securities and Exchange Commission, seeking clarity on token airdrops.

The amicus brief, filed by the non-profit organizations, argues that a Waco District Court judge should compel the SEC to respond to claims by Beba, an American clothing brand that rewarded shoppers with tokens, and the DeFi Education Fund that airdrops do not violate securities laws.

In March, Beba and the DeFi Education Fund filed a lawsuit against the SEC, arguing that token airdrops cannot be classified as securities under the Howey Test. The Howey Test is a nearly century-old legal standard used by the SEC to determine whether a transaction represents an “investment contract.”

The plaintiffs in the lawsuit argue that airdrops fail the Howey Test because there is no reasonable expectation of profit from the tokens received.

“The first prong of the Supreme Court’s Howey test to determine whether a particular instrument is an ‘investment contract’ and therefore a security requires a court to find that there has been an ‘investment of money.’ In an airdrop, there is no investment of money because the recipient generally receives a token for free,” the Blockchain Association and Crypto Council lawyers wrote in their amicus brief.

“SCOTUS means what it says by this – money means money,” Blockchain Association Head of Legal Marisa Tashman Coppel said on Friday.

Beba's lawsuit is part of a wave of lawsuits filed by crypto industry participants seeking clarity from the SEC, which has been accused of “regulating by enforcement” rather than creating clear rules.

Since taking office, SEC Chairman Gary Gensler has stated that most cryptocurrencies are securities and that blockchain firms must register with the agency.

However, the SEC's aggressive approach to regulating crypto has sparked arguments that the agency is overstepping its authority by suing some of the largest crypto firms in and outside the U.S.

Beba and the DeFi Education Fund are arguing that the SEC is violating the Administrative Procedures Act, the federal law that governs how federal agencies create and enforce rules.

The Blockchain Association and Crypto Council for Innovation both contend that the SEC is violating its congressional mandate by regulating crypto without legislative clarity. They argue that the SEC’s actions are causing confusion and leading to a “brain drain” of talent from the U.S.

The association and council maintain that airdrops are “the tip of the iceberg” regarding the SEC’s stifling impact on the industry. They further assert that token giveaways are among the clearest instances where the agency is misapplying the Howey Test. According to them, not only is there no exchange of funds — and hence no investment — but there is also no "common enterprise" between the issuer and the recipients.

Shortly after Beba's lawsuit was filed, the SEC filed a motion to dismiss the case. The Blockchain Association and Crypto Council are now requesting that the court deny the SEC's motion and grant the plaintiffs' request for relief.

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