Beba, a clothing company based in Texas and led by African immigrants, has joined forces with the DeFi Education Fund to protect its recent distribution of BEBA tokens from potential action by the United States Securities and Exchange Commission (SEC). They are seeking a declaratory judgment from the U.S. District Court for Western Texas. In the lawsuit filed on March 25, the plaintiffs also requested the court to clarify the extent of the SEC’s authority in light of the Administrative Procedures Act (APA).
According to the lawsuit, Beba has created a total of 100,000 BEBA tokens and has so far distributed 60,880 of them through an airdrop. The tokens are intended to be freely tradable and are expected to increase in value. However, the SEC may argue that the BEBA tokens are investment contracts and that the airdrop constitutes a securities transaction that should comply with registration requirements under the Securities Act of 1933.
Nevertheless, the plaintiffs argue that the recipients of the tokens did not have to fulfill any requirements or provide any meaningful consideration to be eligible for the airdrop, such as following Beba on social media. Therefore, they argue that there is no common enterprise involved in the airdrop. Additionally, Beba did not make any promises to take actions to enhance the value of the tokens. As a result, the plaintiffs contend that the airdrop does not meet the criteria for a contract under the Howey test.
It is worth noting that tokenholders are eligible for a discount on Beba’s products, similar to a customer loyalty program.
The lawsuit also raises concerns about the SEC’s policies under Chair Gary Gensler, alleging that the SEC violates the APA by not adhering to its requirement for transparency and public input when making new rules. The plaintiffs are seeking a resolution that would invalidate the alleged policy and prevent the SEC from enforcing it.
Coinbase, a cryptocurrency exchange, has also filed a lawsuit claiming that the SEC is violating the APA in its demand for a rulemaking from the SEC.
In the world of blockchain, DeFi, and NFTs, there is a growing need for law schools to incorporate these topics into their curriculum.