US Lawmakers Demand Answers From Gary Gensler on SEC’s Position That Crypto Airdrops Are Securities Transactions

Two crypto-friendly US lawmakers want U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler to clarify the regulator’s position on airdrops.

In a public letter sent to Gensler this week, Representatives Patrick McHenry (R-North Carolina) and Tom Emmer (R-Minnesota) argue that the SEC’s regulatory approach inhibits decentralization in the crypto space.

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“By creating a hostile regulatory environment, including making assertions about airdrops in various cases and increasing warnings for additional enforcement actions, the SEC is putting its thumb on the scale and precluding 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 claimed Sun, BitTorrent and Rainberry sold BTT in “unregistered monthly airdrops to investors,” which the regulator argued violated securities laws. The lawsuit is ongoing.

Emmer and McHenry want Gensler to clarify how airdrops fit in with 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 filings, the SEC has taken the position that digital assets, in and of themselves, are not securities. Does the SEC believe that giving away non-security digital assets for free implicates 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 implicating the Howey Test. These rewards are distributed freely to encourage engagement, just as airdrops aim to engage users and developers in the blockchain network’s growth and decentralization. How does the SEC distinguish between these rewards, given away for free, and digital assets airdropped to an individual?”

The Republican lawmakers asked for a response by September 30th.

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