Global: SEC Seeks Dismissal of Retailer’s Crypto Lawsuit, Citing Nonexistent Policy

The Securities and Exchange Commission (SEC) has requested a judge to dismiss a lawsuit filed by American apparel company Beba, which sought protection from potential regulatory action over a past cryptocurrency airdrop.

On July 3, the SEC filed a motion to dismiss the lawsuit, which Beba and the DeFi Education Fund (DEF) initiated on March 25. The lawsuit asked a Waco District Court judge to declare that Beba’s self-titled token, which had been distributed through an airdrop, was not a security.

The SEC contends that the lawsuit is “premature and based on a nonexistent” policy.

Beba’s lawsuit argued that the SEC would classify BEBA tokens as securities and would subsequently sue the company. It claimed that the SEC had “adopted a de facto rule, without notice or comment, that the ‘vast majority’ of digital assets ‘are securities,’” referencing remarks made by SEC Chair Gary Gensler in 2022.

In its motion to dismiss, the SEC stated that the lawsuit is “premature and based on a nonexistent policy that the Commission never adopted and does not actually exist.”

The SEC pointed out that Beba and DEF failed to identify “a rule, order, or other Commission action that reflects the promulgation of the supposed policy.”

The motion also noted that the complaint did not allege any “imminent or threatened” regulatory action against Beba, nor did it indicate that the SEC had investigated the company.

“In effect, plaintiffs ask this Court to adjudicate the legality of a policy that does not exist and to block potential future enforcement action that may never occur,” the SEC argued.

The SEC has sued multiple cryptocurrency companies for alleged violations of U.S. securities laws, asserting that numerous cryptocurrencies are unregistered securities.

Beba and DEF’s lawsuit claimed that the SEC’s actions violated the Administrative Procedure Act (APA) because the regulator bypassed the formal rulemaking process.

However, the SEC countered that an unwritten policy or the threat of enforcement does not constitute a rule under the APA’s definition. The regulator also asserted its immunity from lawsuits until it waives that right through an action such as rulemaking. The alleged policy by Beba and DEF was insufficient to prove that the SEC had waived its immunity by forming a view on cryptocurrency.

“The Commission acts through a majority vote of a quorum of its five Commissioners,” the SEC explained. “The statement of a single Commissioner cannot represent the adoption or existence of a Commission policy, and a Commissioner’s speech is not agency action.”