Texas-based clothing company Beba, led by African immigrants, has joined forces with the DeFi Education Fund to challenge potential actions by the U.S. Securities and Exchange Commission (SEC) regarding its recent BEBA token airdrop. Together, they aim to obtain a declaratory judgment from the U.S. District Court for Western Texas, seeking clarification on the SEC’s authority under the Administrative Procedures Act (APA).
Beba created 100,000 BEBA tokens, of which 60,880 have been airdropped so far. The tokens are designed for free trading and are anticipated to appreciate in value. However, the SEC is likely to classify BEBA tokens as investment contracts, subjecting the airdrop to securities registration requirements under the Securities Act of 1933.
The plaintiffs contest the SEC’s position, asserting that token recipients participate in the airdrop without meaningful consideration and without establishing a common enterprise with Beba. Additionally, Beba has made no promises to enhance the token’s value, thus not meeting the criteria for an investment contract under the Howey test. They liken the token offer to a customer loyalty program.
Apart from defending the airdrop, the lawsuit criticizes SEC policies under Chair Gary Gensler, alleging violations of the APA. The suit argues that the SEC’s adoption of an unwritten policy, treating most digital assets as securities and their transactions as securities transactions, breaches the APA’s procedural and substantive requirements.
The suit seeks a declaration of the SEC’s APA violations and requests the court to nullify the purported policy or prevent its enforcement. Coinbase, in a separate action, also accuses the SEC of APA violations and demands rulemaking from the commission.
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