The cryptocurrency industry is attacking US regulators with a pre-emptive lawsuit against the Securities and Exchange Commission (SEC), highlighting its strict enforcement of securities law.
On Monday, the Decentralized Education Fund (DEF) filed a lawsuit in federal court in Texas against the Securities and Exchange Commission, arguing that Beba, a Texas-based clothing company, did not violate US securities laws by dropping its BEBA cryptocurrency to customers for free. .
The lawsuit seeks a court order formally declaring the Beba airdrop legal, potentially protecting other similar airdrops from SEC lawsuits.
“Beba has engaged and plans to engage in a course of activity that is factually consistent with securities law but has been declared unlawful by SEC policy,” DEF wrote in Texas District Court. Deposit.
Beba has not actually been sued by the SEC, but is preemptively invoking the declaratory judgment law. The law allows any party to seek legal recourse before suffering damages if it reasonably believes that it will be subject to unwarranted enforcement action.
Going on the offensive represents a shift for the cryptocurrency industry, which has historically played defense against sporadic lawsuits brought by the SEC against companies and projects without warning.
“It's definitely a change in strategy for us,” said Amanda Tominelli, DEF's legal director. Decryption.
Key to the DEF's approach in filing Monday's lawsuit is the accusation that the SEC violated the Administrative Procedure Act (APA) by creating informal internal policies around cryptocurrencies without disclosing them publicly.
The SEC has repeatedly Maintained That there is no need for cryptocurrency-specific rules at the agency, and that regulators are merely enforcing existing securities laws, which it says clearly apply to many cryptocurrency offerings.
“They certainly have a policy that they use to do all of these actions and send out subpoenas and do investigations,” Tominelli said. “Because they adopted this policy behind closed doors and refused to write it down, this is a violation of the APA.”
Last month, also in federal court in Texas, a group of prominent cryptocurrency companies, including Coinbase and Andreessen Horowitz, filed a lawsuit against the Securities and Exchange Commission, claiming that the agency does not have jurisdiction over much of the cryptocurrency industry. This lawsuit represents one of, if not the first, proactive legal action against the federal regulator over its cryptocurrency policies.
The Securities and Exchange Commission (SEC) has been aggressively pursuing legal action against cryptocurrency companies for years. So why are crypto companies now only choosing to file abusive lawsuits?
“It's not easy to find people who want to sue the SEC,” Tominelli said. “Who are like, ‘Yes! Let me put myself in the crosshairs of the SEC and risk them knowing who I am!
But at this point, the risks facing companies like Beba using cryptocurrencies may be so obvious that any tactical advantage may be worth preemptively drawing the wrath of the SEC.
History shows that the SEC has targeted cryptocurrency companies similar to Beba in the past; In 2018, it sued Tomahawk Exploration LLC for promoting and distributing “Tomahawk coins,” even though the company never raised any money. In 2022, the agency sued Hydrogen technology company To distribute free “Hydro” tokens for marketing purposes and create a secondary market.
According to the DEF, such distributions cannot be called securities transactions because they do not involve the investment of funds from counterparties — a central tenant of the SEC's Howey test, which is used to identify investment contracts.
In recent months, free cryptocurrency giveaways have exploded, raising billions of dollars for companies and projects — although the tokens were initially dropped for free users, unlike… Legally exhibition The practice is now outdated Initial coin offerings (Initial Coin Offering).
In a message to DecryptionUniversity of Kentucky law professor Brian L. Fry said the DEF made a “strong case” that the airdrops fall outside the SEC's jurisdiction.
In the past, Fry has criticized cryptocurrency companies such as Coinbase To downplay the breadth of the SEC's authority over Howey, but he believes the DEF's claims about the airdrops make better sense.
By contrast, he believes the fund's efforts to prove the SEC violated the APA may be an uphill battle.
“The SEC does not claim to be creating a new rule for cryptocurrencies, but rather regulates under its existing authority, as interpreted by the Supreme Court in the Howie case,” Frey explained. “You don't need notice and comment when you can take your case to court.”
Edited by Ryan Ozawa.
