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DEF and Beba Collection are incredibly appreciative of all of the amicus briefs submitted to the court in our pre-enforcement challenge against the SEC. The amici provide important information to the court, explaining why the SEC’s approach to airdrops and its regulation by enforcement campaign against the industry are unlawful, have a significant chilling effect on innovation, and should be stopped.
What happened?
Blockchain Association (BA) and the Crypto Council for Innovation (CCI) filed an amicus brief in support of Beba and DeFi Education Funds’ claims against the SEC. The amici argue that the SEC's stance on airdrops, particularly free airdrops, exceeds the extent of SEC jurisdiction outlined in SEC v. W.J. Howey, which requires an "investment of money" for an asset to qualify as an investment contract. The amici assert that free airdrops, where recipients receive tokens without providing any consideration back to the token creator, fails to satisfy the investment of money prong. The brief also criticizes the SEC’s inconsistent regulation by enforcement, arguing it harms innovation by pushing crypto businesses and talent overseas, thus weakening U.S. competitiveness. Additionally, BA and CCI note that other countries, like those in the EU, have introduced clear, supportive crypto regulations, while the SEC's approach remains unpredictable and detrimental to the industry. The amici argue that regulatory clarity is needed to prevent further harm and support plaintiffs' opposition to the SEC's motion to dismiss.
In an amicus brief filed by venture capital firms Variant Fund, Andreessen Horowitz, Multicoin Capital, Paradigm, and Union Square Ventures, amici argue that by moving to dismiss Beba’s lawsuit against the SEC, the SEC continues to “attempt to evade judicial scrutiny of its assertion of jurisdiction over digital assets.” They refute the SEC’s arguments that Beba does not face imminent credible threat of enforcement action and, upon facing enforcement action, that Beba would not suffer a cognizable harm. Beba has and plans to continue conducting free airdrops similar in nature to those that have previously been targeted by SEC enforcement actions. This not only provides grounds for a credible threat, but were the SEC to pursue enforcement against Beba, Beba would suffer substantial losses. The brief notes that “[t]he SEC has charted an increasingly broad and uneven path of regulation through enforcement, a path that the SEC’s own Commissioners Hester Peirce and Mark Uyeda continue to criticize,” and that the SEC simply “expects that companies will change their behavior based on allegations it has made in prior actions, even if those allegations were never adjudicated by a court.” Therein lies another issue resulting from the SEC’s approach of enforcement action: three of the four enforcement action cases that the SEC has initiated have ended in settlements, sometimes because small projects do not have the resources to defend itself against an enforcement action. The brief highlights that, without litigation on how airdrops do and do not violate securities laws, companies must “scour SEC enforcement actions and a mosaic of court decisions to ascertain how the law applies.” Given that Beba meets the standards necessary to prove that it faces a credible threat of enforcement and cognizable harm, the brief ultimately urges the court to dismiss the SEC’s motion.
Coin Center’s amicus brief centers around the importance of organizational standing for organizations that represent open-source developers and the concrete injuries that DEF has suffered to receive such a standing in this lawsuit. The brief explains how cryptocurrency development is both open-source and decentralized, making it challenging for independent developers to come up with the proper legal defense against numerous enforcement actions. Organizations like DEF and Coin Center fill the gap by serving as representatives for the industry in defending their rights and interests from government overreach. Coin Center then highlights the concrete injury that is sufficient for DEF’s organization standing. Specifically, the brief supports DEF’s assertion that it has required significant resources to address issues arising from the SEC’s enforcement-based approach to policy making. And because the SEC has neglected traditional rulemaking processes, Coin Center asserts that DEF and other policy advocacy organizations are limited in their ability to properly influence policy through established administrative procedures, leaving DEF with no choice but to rely on judicial intervention.
In its amicus brief, Coinbase argues that the SEC’s enforcement approach has created an unworkable regulatory environment for digital asset companies like Beba, effectively placing them in a “Catch-22.” Coinbase highlights that in 2021, the SEC allowed it to go public without raising concerns that digital assets available for trade on its platform are unregistered securities. Since then, the SEC has loudly asserted that most digital assets meet the criteria of securities without providing formal rulemaking or industry guidance. In 2022, Coinbase filed a petition for rulemaking to seek regulatory clarity, but the SEC dismissed the request without addressing the fundamental issues, making compliance nearly impossible for digital asset firms. Instead of responding by providing clear guidance or rulemaking, the SEC has pursued a “regulation-by-enforcement” strategy. Coinbase also highlights the SEC’s deeply inconsistent views on digital assets by presenting the court with examples of the SEC’s numerous conflicting statements in recent years. Coinbase characterizes the current regulatory environment as a “Catch-22” for digital asset companies in that they are expected to comply with rules that are inapplicable and unworkable, with no formalized pathway to achieve compliance. Given this regulatory bind, Coinbase supports Beba’s request for declaratory relief, asking the court to formally recognize that digital assets are generally not “investment contracts” under existing securities laws, providing needed clarity for the digital asset industry.
In an amicus brief co-filed between the Texas Blockchain Council (TBC) and Investor Choice Advocates Network (ICAN), the amici argue that the SEC’s “regulation by enforcement” practice and control of the overall public narrative of crypto has lead to harmful results in the crypto marketplace and discourages innovation. The amici provide three examples of how the SEC is harming the digital asset industry: first, through avoiding a debate on sensible and cost-effective regulations towards crypto; second, by causing risk to investors and the digital asset industry through not offering clear rules and guidance; and third, by robbing the markets of information related to SEC regulation. The amici also stress the ramifications of the SEC using enforcement instead of creating laws on other emerging industries and point out that the SEC’s “regulation by enforcement” pattern also causes a negative effect on public perception of the digital asset industry. For example, when the SEC seeks to penalize a crypto company through enforcement, oftentimes a settlement is reached that allows the SEC to publicize their own narrative of the case through press releases and other public statements but the company has little opportunity to do the same. The public is only given the SEC’s version of the crypto narrative and not the full picture. This miseducation deprives the public of details regarding the actual acts that led the SEC to enforce violations against a company.
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