Crypto Groups Challenge US SEC on Airdrop Rules In Ongoing Court Case—Details

A recent legal dispute surrounding token airdrops has gathered the support of prominent crypto lobbying organizations, including the Blockchain Association and the Crypto Council for Innovation.

These Washington, D.C.-based lobbying groups have filed an “amicus brief” backing apparel brand Beba in its lawsuit against the US Securities and Exchange Commission (SEC).

Details Of The Ongoing Legal Battle Against The SEC

Filed in March, the case seeks proactive clarity from the SEC regarding how token airdrops align with US securities laws.

Beba and the DeFi Education Fund argue that airdrops fall outside the scope of the “Howey Test,” a legal standard determining if a transaction qualifies as an investment contract.

By this measure, the plaintiffs contend that airdrops lack an “investment of money,” as tokens are typically distributed for free without expecting profit.

The Blockchain Association and Crypto Council lawyers highlighted this point in their filing, arguing that SEC regulation of token airdrops constitutes an overextension of the agency’s authority.

1/ Today, @BlockchainAssn & @crypto_council filed an amicus brief in @fund_defi & @BebaCollection v. SEC. Does an airdrop mean there is an investment of money even if it’s free? The SEC says yes; plaintiffs say no. Plaintiffs are right. We explain why.https://t.co/9uVUn23PVN 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 intent to regulate nearly all digital assets under existing securities laws.

The SEC’s approach has faced significant pushback, with several crypto firms alleging the agency’s actions contravene the Administrative Procedures Act (APA), which outlines the process for federal agencies to create and enforce rules.

According to Beba, Coinbase, Binance, and other plaintiffs, the SEC’s enforcement-driven strategy “lacks adequate legislative backing.”

In their court brief, the Blockchain Association and the Crypto Council argue that the SEC’s interpretation of the Howey Test fails to account for critical distinctions between traditional financial instruments and digital assets.

Specifically, they emphasize that airdrops involve no direct investment, which they claim nullifies the applicability of securities laws in this context.

Marisa Tashman Coppel, head of legal at the Blockchain Association, pointed out that a lack of “common enterprise” further challenges the SEC’s approach, as recipients and issuers of airdrops often do not share a unified business interest.

The US SEC, however, has already moved to dismiss the lawsuit, maintaining that it has the authority to regulate crypto assets as securities.

This motion comes as the agency continues to pursue regulatory action against high-profile digital asset firms, creating a climate of regulatory uncertainty that has led several companies to reconsider their operations in the country.

The Blockchain Association and Crypto Council are urging the court to reject the SEC’s dismissal motion, calling for regulatory clarity to avoid “stifling innovation” within the US crypto industry.