Multiple heavy hitters in the cryptocurrency industry submitted amicus briefs in a federal district court in western Texas supporting an apparel company and a decentralized finance advocacy organization in their preemptive lawsuit against the U.S. Securities and Exchange Commission.
“The crypto industry, through legal scholars, industry groups and organizations, is presenting a united front in high-profile legal battles and fighting back against overreaching regulatory agencies, primarily the SEC,” said Tyler Harttraft, a partner at Bull Blockchain Law in Philadelphia, Pennsylvania, who specializes in crypto litigation and is not involved in the case.
In the underlying case, the plaintiffs, Beba LLC and DeFi Education Fund, filed a complaint against the SEC for declaratory and injunctive relief, asking U.S. District Judge Alan D. Albright of the Western District of Texas to rule that the “Beba tokens” are not investment contacts and the apparel company is free to “airdrop” them in people’s wallets for marketing purposes.
In the complaint, the plaintiffs argued that the SEC would likely take the position that Beba tokens are investment contracts and the airdrop is a securities transaction subject to registration under the Securities Act of 1933. However, the plaintiffs argued that the SEC has engaged in no formal rulemaking addressing which digital asset transactions involve the offering of a security.
Paradigm and Andreessen Horowitz, venture capital firms based in California; Multicoin Capital, a crypto-focused investment firm based in Texas; and Union Square Ventures and Variant, venture capital firms in New York, wrote in their amicus brief that only one company that has been charged by the SEC in connection with airdrops of digital assets has pushed back.
“This, of course, is unsurprising, as the SEC has the full power of the United States government and vastly more resources for litigation than the innovative companies utilizing blockchain technology, and the cost of fighting the SEC would risk bankrupting any such company,” the five companies alleged. “As a result, no court has ruled—as this Court is being asked to do—whether airdrops of digital assets are in fact investment contracts.”
Similarly, Paul Grewal, chief legal officer for Coinbase Inc., said on X the digital asset company filed its amicus brief to stop the “destructive regulation-by-enforcement campaign waged by the SEC against law-abiding American companies.” Coinbase has been in litigation with the SEC for several years and has faced at least one unrelated lawsuit over the airdrop of cryptocurrencies.
“The SEC sues digital-asset developers and exchanges seeking punitive, retroactive penalties for their purported failure to ‘come in and register,'” Coinbase alleged in its brief. “But the agency simultaneously refuses to explain on the record, through a rulemaking, how the compliance it demands is even possible.”
“This creates a chilling effect on innovation and market development, effectively forcing companies to either accept SEC settlements or abandon U.S. markets entirely,” said Nicolle Lafosse, of counsel at the international law firm of Diaz Reus, who is not involved in the case but whose specialty includes crypto litigation.
As a result, the advocacy organizations Crypto Council for Innovation and the Blockchain Association argued on social media and in their amicus brief in support of the plaintiffs that the SEC’s regulatory stance puts “the U.S. at risk of missing the digital asset boom.”
“While the US lags behind, the UK, Switzerland, France, Dubai, Hong Kong, Singapore, Japan, South Korea, Australia, the Caymans, and BVI are all rolling out clear crypto regulations and attracting business,” they said in their brief. “We are standing up and urging the court to reject the SEC’s flawed arguments—because America’s digital asset future is on the line.”