Beba, an apparel company based in Texas and operated by African immigrants, has teamed up with a DeFi education fund to defend its recent distribution of BEBA tokens through an airdrop against potential regulatory action from the U.S. Securities and Exchange Commission (SEC). The collaboration seeks legal clarification through a declaratory judgment in the U.S. District Court in West Texas. The lawsuit, filed on March 25, also aims to elucidate the boundaries of the SEC's authority under the Administrative Procedure Act (APA).
According to the lawsuit, Beba minted 100,000 BEBA tokens and has distributed 60,880 of them thus far. These tokens are intended for open trading and are anticipated to appreciate in value. However, the SEC is expected to assert that the BEBA tokens constitute investment contracts and that the airdrop qualifies as a securities transaction, subject to registration requirements under the Securities Act of 1933.
Contrary to the SEC's potential stance, the plaintiffs argue that recipients of the tokens did not undertake any actions to participate in the airdrop, nor did they provide any meaningful consideration beyond activities like following Beba on social media. As such, the airdrop does not entail traditional contractual elements. Additionally, Beba did not undertake measures to artificially boost the token's value, further distancing it from the criteria outlined in the Howey test. However, token holders are entitled to discounts on Beba's merchandise, which the company likens to a customer loyalty program.
In addition to defending the legitimacy of the airdrop, the lawsuit calls into question SEC policies under Chairman Gary Gensler. It alleges that the SEC violated the APA by implementing a new, unwritten policy that deems virtually all digital assets as securities and categorizes most digital asset transactions as securities transactions. The lawsuit seeks to rectify this alleged violation by urging the court to invalidate the policy or prohibit the SEC from enforcing it.
