The DeFi Education Fund and clothing company Beba are suing the Securities and Exchange Commission, asking a Texas district court to rule that their $BEBA token airdrop is not a guarantee and to enforce the Administrative Procedure Act on the SEC’s rulemaking process.
In a complaint filed Monday in the U.S. District Court for the Western District of Texas, the two men also asked the court to force the SEC to comply with the Administrative Procedure Act (APA). This law governs how federal agencies develop and issue rules.
The $BEBA token is an asset that can be exchanged for exclusive products from Texas-based Beba’s online store. The store plans to continue distributing the token for free via an airdrop, according to the 61-page document. complaint.
“The SEC’s unfair and ad hoc enforcement campaign threatens businesses of all kinds, including companies like Beba that want to be able to use innovative technologies for legitimate business reasons,” said Miller Whitehouse-Levine, CEO of DeFi Education Fund, in a press release. statement. “All of us in this industry, including the DeFi Education Fund, are harmed by their overreach. We ask the court to put an end to the SEC’s arbitrary abuse of power.”
The SEC and the crypto industry are at odds over how digital assets should be regulated. SEC Chairman Gary Gensler said most cryptocurrencies are securities and should be regulated the same as other investments. The crypto industry claims the agency has failed to issue rules for crypto and has criticized the agency for taking a “regulation by application” approach.
Monday’s lawsuit marks the second time in recent weeks that the crypto industry has sued the SEC. Digital asset company LEJILEX for follow-up the SEC in February in a Texas court over the agency’s “unlawful targeting” of the crypto industry. Last year, cryptocurrency exchange Coinbase also sued the SEC to get the agency to say yes or no to its regulatory petition.
Arguing about $BEBA is not security
Beba airdrops are not securities and BEBA tokens are not investment contracts, the DeFi Education Fund and Beba assert in the complaint. The SEC often invokes the Howey test, based on a 1946 U.S. Supreme Court case frequently cited by the SEC, to determine whether an asset qualifies as an investment contract and, therefore, as an investment contract. as title. The test states that an asset must have three elements: an investment of money in a joint enterprise with a reasonable expectation of profits from the efforts of others.
“But BEBA token airdrops are free, there is no joint enterprise between Beba and token recipients, and there is no reasonable expectation of profits based on the efforts of others,” they said. declared.
Beba recently made her first parachute drop and plans to do a second. The BEBA token works like airline miles, except that it can also be freely exchanged. Token holders can also purchase an exclusive line of duffel bags at a discounted price, they said in the complaint.
“Like any business owner, I am always thinking of new and innovative ways to reach more customers, increase support for our products, and increase awareness of Beba’s mission,” said Nathan Hennigh, co- founder of Beba in a press release. “Unfortunately, my brother and I operate in a state of constant uncertainty due to the SEC’s dangerous history of randomly going after companies that use digital assets, just like our $BEBA token.”
SEC Violation of the APA
The SEC also should have gotten public input when it decided that most digital assets are securities, the DeFi Education Fund and Beba said in the complaint.
“The digital assets industry was forced to take notice of this new policy through the SEC’s enforcement actions, which provided only a nominal analysis concluding that transactions involving digital assets were securities transactions – or that the digital assets themselves were securities – and little in the way of legal explanation or analysis,” they said. “This closed-door policy approach has deprived the digital assets industry and the public of their right under the APA to receive notice and comment on the SEC’s new policy.”
The SEC has 60 days to respond to the complaint. The agency did not immediately respond to The Block’s request for comment.
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