Crypto Industry Files Preemptive Lawsuit Against SEC

The crypto industry files a preemptive lawsuit against the SEC in Texas, challenging the enforcement of securities laws. DEF defends Beba's airdrop, arguing it did not violate regulations as it didn't involve monetary investments. This bold move questions the SEC's Howey Test criteria and aims to establish legal clarity for future crypto initiatives.

Crypto Industry Takes on SEC with Preemptive Lawsuit

Why Now?

The crypto industry is taking a bold stance against the Securities and Exchange Commission (SEC) with a preemptive lawsuit filed in a Texas federal court. The DeFi Education Fund (DEF) is challenging the SEC's enforcement of securities law against Beba, a Texas-based apparel company that airdropped its BEBA crypto token to customers for free.

Beba's Airdrop: Legal or Not?

Beba's airdrop has not yet been targeted by the SEC, but DEF is seeking a court order declaring it legal. The suit argues that the airdrop did not violate U.S. securities laws because it did not involve an investment of money from counterparties. This is a key factor in the SEC's Howey Test, which is used to identify investment contracts.

SEC's Enforcement Actions: Overzealous or Justified?

The crypto industry has historically been on the defensive against SEC lawsuits. However, DEF's lawsuit marks a shift in strategy. Amanda Tuminelli, DEF's Chief Legal Officer, believes the SEC has abused its power by targeting the industry without clear guidance.

Unofficial SEC Policies: Violation of the APA?

DEF alleges that the SEC has violated the Administrative Procedures Act (APA) by creating unofficial, internal policies about crypto without disclosing them publicly. The SEC maintains that it is enforcing existing securities laws, but DEF argues that its actions constitute a new policy that should have been subject to public notice and comment.

Crypto Firms Suing the SEC: A Tactical Advantage?

The SEC has been aggressively pursuing legal action against crypto companies for years. Why are crypto firms only now opting for offensive lawsuits? Tuminelli suggests that the risks for companies like Beba may be so evident that it's worth attracting the SEC's ire preemptively.

Historical Precedents: SEC's Targeting of Crypto Firms

The SEC has targeted crypto firms similar to Beba in the past. In 2018, it sued Tomahawk Exploration LLC for distributing "Tomahawkcoins" without raising any money. In 2022, it sued Hydrogen Technology Corporation for distributing free "Hydro" tokens and creating a secondary market.

Legal Expert's Perspective: Airdrops Outside SEC's Jurisdiction?

University of Kentucky law professor Brian L. Frye believes DEF has made a "solid case" that airdrops fall outside the SEC's jurisdiction. He argues that the SEC is not claiming to make a new rule for crypto but rather regulating under its existing authority. However, he believes DEF's claims about the SEC violating the APA may be more difficult to prove.