The DeFi Education Fund, a crypto advocacy group, and Texas-based apparel company Beba LLC have together initiated legal action against the US SEC to clarify the classification of airdrops as non-securities offerings.

In the court filing dated March 25, the emphasis was placed on the necessity to halt the SEC’s regulatory actions, which the two entities perceive as an overreach into the emerging industry.

According to the DeFi Education Fund:

“The crypto industry faces a significant threat from an overly aggressive regulator who is misusing its authority by targeting our sector through continuous aggressive enforcement measures. It's time for the court to intervene.”

Consequently, the lawsuit seeks a declaration from the Court that airdropped tokens do not qualify as securities. Additionally, it aims to prevent the SEC from pursuing further enforcement actions within the sector.

‘Airdrops are free’

Amanda Tuminelli, Chief Legal Officer of the DeFi Education Fund, disclosed Beba’s concerns regarding potential SEC scrutiny over its BEBA token airdrop.

To address this, Beba initiated legal action against the SEC to establish that the BEBA token airdrop does not constitute a security. The company asserts several grounds for this, notably the absence of monetary investment, lack of shared enterprise, absence of a reasonable expectation of profit, and absence of a contractual arrangement or scheme.

The lawsuit stated:

“The BEBA token airdrops are free, there is no common enterprise between Beba and token recipients, and there is no reasonable expectation of profits based on the efforts of others.”

APA violations

Furthermore, the lawsuit argues that the Gary Gensler-led Commission violated the Administrative Procedure Act (APA) by adopting a policy asserting that almost all digital assets constitute investment contracts and most digital asset transactions qualify as securities transactions.

According to Tuminelli, this approach is a consistent pattern observed in the SEC’s enforcement actions against actors in the emerging industry. She noted that the SEC has failed to provide detailed guidelines for the sector because “they know they will face a massive backlash” and “they know Congress hasn’t given them the authority to cast such a wide net.”

She added:

“The SEC’s enforcement activities, whether they be subpoenas, secret investigations, or complaints filed in federal court, are unlawful and pose an existential threat to our future. They have to be stopped.”