Two crypto-friendly US lawmakers want Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), to clarify the regulator’s position on airdrops.
In a public letter sent to Gensler this week, Reps. Patrick McHenry (R-North Carolina) and Tom Emmer (R-Minnesota) argue that the SEC’s regulatory approach is inhibiting decentralization in the crypto space.
“By creating a hostile regulatory environment, including making claims about airdrops in several cases and increasing warnings of additional enforcement actions, the SEC is putting its thumb on the scale and preventing American citizens from shaping the next iteration of the Internet. ”
The lawmakers cited the SEC’s 2023 lawsuit against crypto mogul Justin Sun, the Tron Foundation, BitTorrent Foundation and Rainberry Inc (formerly known as BitTorrent). The regulator accused the defendants of offering and selling unregistered crypto securities, namely TRX and BitTorrent (BTT).
The SEC specifically alleged that Sun, BitTorrent and Rainberry sold BTT in “unregistered monthly airdrops to investors,” which the regulator said violated securities laws. The lawsuit is still ongoing.
Emmer and McHenry want Gensler to clarify how airdrops fit into the Howey Test, an assessment created by the Supreme Court more than 90 years ago to determine whether assets should be classified as securities.
“In recent court cases, the SEC has taken the position that digital assets are not securities in themselves. Does the SEC believe that giving away unsecured digital assets for free constitutes the Howey test? If so, under what circumstances or arrangements?
Companies routinely offer rewards to customers through intangible representations of value, such as airline miles or credit card points, without implying the Howey test. These rewards are distributed freely to encourage engagement, just as airdrops aim to engage users and developers in the growth and decentralization of the blockchain network. How does the SEC distinguish between these rewards, which are given away for free, and digital assets sent to an individual?
Republican lawmakers requested a response by September 30.
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