- The SEC has accused Binance of shady business practices.
- The legal battle has become just one of several hurdles for Binance.
- An upcoming hearing is poised to carry significant weight for the entire industry.
In a setback for cryptocurrency exchange Binance, a U.S. judge ruled on Friday that the Securities and Exchange Commission (SEC) can pursue most of its claims against the company. The SEC alleges that Binance offered unregistered securities and violated anti-fraud regulations.
SEC Wins Right to Sue Binance
The judge, Amy Berman Jackson, allowed the SEC to proceed with charges related to Binance’s staking program, the sale of its BNB token after its initial coin offering, and the company’s failure to register under the Exchange Act.
Sponsored
The SEC also maintains that former Binance CEO Changpeng Zhao, known as “CZ,” acted as a “control person” in the alleged violations, and this claim will also be heard in court. However, Judge Jackson dismissed the SEC’s claim that secondary sales of BNB qualify as securities under the Howey Test.
Binance’s BNB Deemed Not a Security
This decision follows a similar ruling by Judge Analissa Torres in the Ripple case, which highlighted the importance of considering the economic realities of token transactions when applying the Howey Test.
Judge Jackson’s decision dismantled several arguments put forth by the SEC. The Judge rejected the argument that “crypto assets are the embodiment of the investment contract,” stating that this, along with claims regarding the technology’s nature, platform independence, and individual token performance, were insufficient to classify secondary sales of BNB as investment contracts.
The Judge also dismissed the SEC’s claims concerning the sale of Binance’s USD stablecoin (BUSD) and its passive income feature, “Simple Earn.” Additionally, Judge Jackson pointed out an inconsistency in the SEC’s approach. The government’s initial position, as noted by the Judge, stated they weren’t claiming the coins themselves were securities, but rather investment contracts.
Sponsored
This distinction, along with the Judge’s recognition that a token’s nature can evolve over time, significantly weakens the SEC’s position. Judge Jackson’s ruling marks a significant development in the ongoing debate surrounding the classification of digital assets.
July Court Hearing Crucial for Binance
The SEC filed its lawsuit against Binance in June 2023, alleging the exchange was operating illegally within the U.S. Binance has maintained that the SEC is overstepping its authority. The company remains the world’s largest cryptocurrency exchange, boasting over 200 million users and $100 billion in assets under management.
CZ’s legal troubles are compounded by the recent revocation or non-renewal of its money transmitter licenses in seven U.S. states and its current four-month prison sentence for violating money laundering laws.
A court hearing is scheduled for July 9 to address the remaining charges against Binance. This case has significant implications for the future of cryptocurrency regulation in the United States, and the outcome will be closely watched by the entire cryptocurrency industry.
On the Flipside
- Binance operates internationally and may not be significantly impacted outside the United States.
- The July hearing will determine the fate of the remaining charges and significantly impact crypto regulation in the US.
Why This Matters
By dismantling the SEC’s arguments on key points like the nature of crypto assets and the evolution of token function, Judge Jackson’s ruling throws a wrench into the regulatory body’s approach to classifying digital assets. This sets a crucial precedent that could significantly impact how the entire cryptocurrency industry is regulated moving forward.
This legal battle between the SEC and Ripple shares similarities with the Binance case. See how their case is progressing:
Ripple and SEC Final Arguments Heard, What Comes Next?
Amid Binance’s legal challenges, users are reportedly selling their accounts. Is this indicative of broader trends in the crypto exchange market?
Binance Users Are Selling Accounts, Exchange Is Cracking Down
