Crypto lobbying groups file court brief supporting lawsuit against SEC, seeks clarity over token airdrops

Washington D.C.-based crypto lobbying firms Blockchain Association and the Crypto Council for Innovation have filed a “friend-of-the-court” brief supporting an ongoing lawsuit against the U.S. Securities and Exchange Commission looking for proactive clarity on token airdrops. 

In the 30-page amicus brief , the non-profit organizations argue that a Waco District Court judge should force the regulator’s hand and respond to Beba, an American clothing brand that issued tokens to reward shoppers, and the DeFi Education Fund’s claims that airdrops do not violate securities laws. 

In March, Beba and DeFi Education Fund sued the SEC , arguing that token airdrops cannot violate the so-called Howey Test — the nearly century-old law used to determine whether a transaction represents an “investment contract” — in part because there is no reasonable expectation of profit. 

“​​The first prong of the Supreme Court’s Howey test to determine whether a particular instrument is an ‘investment contract’ and therefore a security requires a court to find that there has been an ‘investment of money.’ In an airdrop, there is no investment of money because the recipient generally receives a token for free,” the Blockchain Association and Crypto Council lawyers wrote in their amicus brief. 

“SCOTUS means what it says by this – money means money,” Blockchain Association Head of Legal Marisa Tashman Coppel said on X . 

'Tip of the iceberg'

Beba’s action was part of a litany of lawsuits filed by crypto industry participants seeking clarity from the agency that’s often accused of “regulating by enforcement” rather than creating clear rules. Since taking office, SEC Chairman Gary Gensler has said that nearly all cryptocurrencies are securities and that blockchain firms must register with the agency. 

However, it is widely argued that the SEC is overstepping its bounds when regulating crypto and suing some of the biggest crypto firms in and out of the U.S. That’s partially why Beba and the DeFi Education Fund argue — like crypto exchanges Coinbase and Binance — that the agency is violating the Administrative Procedures Act, the federal law establishing how federal agencies must create and enforce rules.

The Blockchain Association and Crypto Council for Innovation both contend that the SEC is violating its congressional mandate by regulating crypto without legislative clarity. They argue that the SEC’s actions are sowing confusion and causing a “brain drain” of talent from the U.S.

The association and council argue that airdrops are “the tip of the iceberg” regarding the SEC’s chilling effect on the industry. They add that token giveaways are also one of the clearest areas where the agency is misinterpreting the Howey Test. Not only is there no exchange of funds — and therefore no investment — but there is also no "common enterprise" between the issuer and the recipients.

The SEC filed a motion to dismiss Beba’s suit shortly after it was filed. The Blockchain Association and Crypto Council are asking the court to reject that motion and support the plaintiffs’ request for relief.