U.S. Representatives Tom Emmer and Patrick McHenry are demanding answers from Securities and Exchange Commission (SEC) Chair Gary Gensler regarding the regulatory treatment of crypto airdrops. In a letter dated September 17, the lawmakers expressed concerns about the SEC’s stance on airdrops, referencing past lawsuits and calling for clarification on how airdrops are classified under securities laws.
SEC’s Scrutiny of Crypto Airdrops
The letter highlights the SEC’s growing involvement in crypto airdrop cases, which are instances where tokens are distributed for free to promote blockchain projects or reward community members. Emmer and McHenry pointed to two major cases where the SEC has taken action against companies distributing tokens through airdrops:
- Hydrogen Technology Corporation (September 2022): The SEC sued the company and its CEO for manipulating the market with over 11 billion Hydro tokens, labeling the airdrops as “unregistered offers and sales of securities.”
- Justin Sun and BitTorrent (BTT) (March 2023): The SEC accused Sun and others of offering and selling unregistered tokens in monthly airdrops to investors.
The lawmakers raised concerns that these actions might inhibit blockchain innovation, stating, “The SEC is putting its thumb on the scale and precluding American citizens from shaping the next iteration of the internet.”
Concerns About the Howey Test and Airdrops
Emmer and McHenry are particularly interested in how the SEC applies the Howey test, a legal standard used to determine whether an asset qualifies as a security, to crypto airdrops. They questioned whether tokens distributed for free should be subject to the same regulations as traditional securities.
In their letter, they asked Gensler to explain:
- How crypto airdrops fit under the Howey test.
- How the SEC distinguishes airdrops from other rewards programs like credit card points.
- The potential economic and tax implications if airdropped tokens are classified as securities.
- Whether the SEC has evaluated the market impact of such classifications.
The lawmakers warned that treating airdrops as securities could have a chilling effect on innovation and prevent blockchain technology from reaching its full potential in the U.S.
Broader Criticism of SEC’s Crypto Approach
This request marks the second time in recent weeks that Republican lawmakers have criticized Gensler’s handling of the SEC. On September 10, several GOP members questioned whether Gensler’s political affiliation influenced hiring decisions at the agency. They accused the SEC of favoring individuals from “left-leaning organizations” for senior positions, which could undermine the agency’s impartiality.
Emmer and McHenry’s latest letter argues that the SEC’s regulatory actions under Gensler are pushing innovation away from the U.S. “The SEC’s approach during your time as Chair has only ensured the next iteration of the internet is not designed by Americans or American values,” they wrote.
The lawmakers have given Gensler until September 30 to respond to their questions. As of now, the SEC has not issued any public comment on the letter or the allegations surrounding the treatment of crypto airdrops.
