The recent legal dispute surrounding airdrops tokens has gathered the support of prominent crypto lobbying organizations, including the Blockchain Association and the Crypto Council for Innovation.
These groups based in Washington, DC have filed an “amicus brief” in support of clothing brand Beba in a case against the US Securities and Exchange Commission (SEC).
Details of the Ongoing Legal Battle Against the SEC
Filed in March, the lawsuit seeks operational clarification from the SEC about how token airdrops comply with US securities laws.
Beba and the DeFi Education Fund argue that airdrops fall outside the scope of the “Howey Test,” the legal standard that determines whether a transaction qualifies as an investment contract.
By this measure, the plaintiffs argue that airdrops do not constitute a “financial investment,” since tokens are often distributed for free with no expectation of profit.
The Blockchain Association and the Crypto Council advocates highlighted this point in their filing, saying that the SEC’s regulation of token airdrops constitutes an extension of the agency’s authority.
1/ Today, @BlockchainAssn & @crypto_council filed an amicus brief @fund_defi & @BebaCollection v. SEC. Does the airdrop mean any investment or is it free? The SEC says yes; the plaintiffs said no. The plaintiffs are right. We explain why. pic.twitter.com/OTIsAEJwM0
— Marisa Tashman Coppel (@MTCoppel) October 28, 2024
Seeking Clarity on Crypto Token Airdrops
Token airdrops have emerged as a prominent area of contention for the digital currency industry. SEC Chairman Gary Gensler has signaled his agency’s intention to regulate nearly all digital assets under existing securities laws.
The SEC’s approach has faced significant backlash, with several crypto firms accusing the agency’s actions of contradicting the Administrative Procedures Act (APA), which defines the process of federal agencies to create and enforce rules.
According to Beba, Coinbase, Binance, and other plaintiffs, the SEC’s enforcement strategy “lacks sufficient legal support.”
In their court filing, the Blockchain Association and the Crypto Council argue that the SEC’s interpretation of the Howey test fails to account for the important differences between traditional financial instruments and digital assets.
Specifically, they emphasize that airdrops do not involve direct investment, which they say removes the applicability of securities laws in this context.
Marisa Tashman Coppel, head of legal affairs at the Blockchain Association, pointed out that the lack of “common business” further challenges the SEC’s approach, as recipients and issuers of airdrops often do not share a common business interest.
The US SEC, however, has already moved to dismiss the case, maintaining that it has jurisdiction to regulate crypto assets as securities.
The proposal comes as the agency continues to pursue measures to regulate high-profile digital goods companies, creating an atmosphere of regulatory uncertainty that has led several companies to reconsider their operations in the country.
The Blockchain Association and the Crypto Council are urging the court to reject the SEC’s dismissal motion, seeking regulatory clarification to avoid “stifling innovation” in the US crypto industry.
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