The cryptocurrency industry has pushed back against U.S. regulators with a preemptive lawsuit against the Securities and Exchange Commission (SEC), drawing attention to aggressive enforcement of securities laws.
DeFi Education Fund (DEF) filed a lawsuit in Texas federal court on Monday, arguing that Texas-based apparel company Beba's free airdrop of its BEBA crypto tokens to customers does not violate U.S. securities laws. Filed a lawsuit against the SEC.
The lawsuit seeks a court order formally declaring Beba's airdrop legal and potentially protecting other similar airdrops from SEC lawsuits.
“While Mr. Beba has in fact engaged in and will engage in a range of activities that comply with securities laws, the SEC's policy has declared them to be unlawful,” DEF said in a Texas district court filing. Ta. filing.
Mr. Beba is not actually being sued by the SEC, but he is preemptively invoking the declaratory judgment statute. The law allows parties to seek legal recourse before suffering damages if they reasonably believe they are subject to an unreasonable enforcement action.
Going on the offensive marks a shift for the crypto industry, which has traditionally defended sporadic SEC lawsuits filed against companies and projects without warning. .
“This is certainly a change in strategy for us,” said Amanda Tuminelli, DEF's chief legal officer. Decryption.
Key to DEF's approach in filing Monday's lawsuit is the accusation that the SEC violated the Administrative Procedures Act (APA) by creating an unofficial internal policy regarding virtual currencies without making it public.
The SEC has repeatedly maintained There is no need for crypto-specific rules in the agency, and the regulator is simply enforcing existing securities laws, which clearly apply to many crypto products.
“They definitely have policies that they're using to take all these actions, send subpoenas, conduct investigations,” Tuminelli said. “It is a violation of the APA because they adopted that policy behind closed doors and refused to write it down.”
Last month, a group of prominent crypto companies, including Coinbase and Andreessen Horowitz, sued the SEC in federal court, also in Texas, arguing that the SEC lacks jurisdiction over large parts of the crypto industry. . The lawsuit marks one of, if not the first, aggressive legal action against federal regulators over crypto policy.
The SEC has been actively pursuing legal action against crypto companies for years. So why are crypto companies choosing aggressive litigation now?
“It's not easy to find people who want to sue the SEC,” Tuminelli said. “Does anyone say yes?” Let me put myself in the crosshairs of the SEC and risk them finding out who I am!”
But for now, the risks for companies like Beba that leverage crypto tokens are so clear that any tactical advantage may be worth pre-empting and incurring the SEC's wrath.
History shows that the SEC has targeted crypto companies similar to Beba in the past. In 2018, the company sued Tomahawk Exploration LLC for promoting and distributing Tomahawk Coins, even though the company had never raised any funding. In 2022, the agency filed a lawsuit. Hydrogen Technology Co., Ltd. Distributing free “Hydro” tokens for marketing purposes and creating a secondary market.
According to DEF, such distributions cannot be called securities transactions. That's because it does not involve the investment of funds from counterparties (the central tenant of the SEC's Howie test used to identify investment contracts).
Free airdrops have taken crypto by storm in recent months, raising billions of dollars for companies and projects despite initially dropping tokens to users for free. legally vulnerable and now an outdated practice Initial coin offering (ICO).
with a message to DecryptionBrian L. Frye, a law professor at the University of Kentucky, said the DEF had made a “robust argument” that airdrops were outside the SEC's jurisdiction.
Frye has criticized crypto companies in the past, including: coinbase Although Howey has criticized the SEC for underestimating how broad its powers are, he believes DEF's arguments regarding airdrops are more reasonable.
By contrast, he believes the fund's efforts to prove that the SEC violated the APA may be more difficult.
“The SEC is not purporting to create new rules regarding cryptocurrencies, but rather builds on its existing authority to regulate, as interpreted by Supreme Court Howie,” Frye explained. “No notice or comment is required to file a lawsuit in court.”
Edited by Ryan Ozawa.
