Beba, a clothing company based in Texas and founded by African immigrants, has joined forces with the DeFi Education Fund to protect its recent airdrop of BEBA tokens against potential actions by the United States Securities and Exchange Commission (SEC). To address this, they have filed a lawsuit and sought a declaratory judgment from the U.S. District Court for Western Texas. The plaintiffs have also requested clarification on the extent of the SEC’s authority in light of the Administrative Procedures Act (APA).
According to the lawsuit, Beba has created 100,000 BEBA tokens and has already airdropped 60,880 of them. These tokens are intended to be freely traded and are expected to increase in value. However, the SEC is likely to argue that the BEBA tokens are investment contracts and that the airdrop constitutes a securities transaction that should comply with the registration requirements under the Securities Act of 1933.
Nevertheless, the plaintiffs have put forward the argument that token recipients do not need to fulfill any requirements to become eligible for the airdrop, nor do they need to take any actions that involve substantial consideration. For example, simply “following” Beba on social media is not considered a meaningful action. Therefore, they claim that there is no common enterprise in the airdrop and that Beba has not made any promises to increase the token’s value. Consequently, they argue that the airdrop does not meet the criteria of a contract under the Howey test.
It is worth noting that tokenholders are eligible for a discount on Beba’s products, which the plaintiffs compare to a customer loyalty program.
In addition to defending the airdrop, the lawsuit also raises concerns about SEC policies under Chair Gary Gensler. The plaintiffs allege that the SEC has violated the APA, which requires agencies to make new rules in a transparent manner with the benefit of public input. As a result, the lawsuit seeks to challenge the SEC’s policies and demands that the court either vacate the alleged policy or prevent the SEC from enforcing it.
Coinbase has also made similar arguments in a separate lawsuit, claiming that the SEC is violating the APA by not engaging in proper rulemaking.
Overall, this collaboration between Beba and the DeFi Education Fund highlights the growing need to address legal and regulatory issues surrounding blockchain, DeFi, and NFTs, and raises questions about why more law schools are not teaching these topics.