As was the case with Coinbase a while back – which we reviewed here – the SEC has ruled on Binance’s petition to dismiss the regulator’s lawsuit on the grounds that the exchange has broken the law.
However, the SEC has interpreted the petition as ridiculous.
Binance’s arguments were based on a legal analysis that, according to the SEC, is completely incorrect. Indeed, in a court filing last November 7, the regulator rejected a previous similar attempt by Binance. According to the SEC, no court would adopt what it describes as a twisted interpretation. In June of this year, the SEC filed its lawsuit alleging that Binance, Binnance.US and its founder, Changpeng “CZ” Zhao, had sold unregistered securities without registering as an exchange in the United States. Against this, Binance argued that the SEC had failed to file appropriate guidelines for cryptocurrencies, while questionably interpreting securities laws as they apply to cryptocurrencies, which led it to call its lawsuit a clear case of abuse of authority.
In response, the SEC countered by stating that Binance would have been in breach of federal securities laws, which would constitute a deliberate choice by the company itself. “Binance’s Chief Compliance Officer,” the statement continued, “rudely but succinctly summed up this case when he admitted that Binance was ‘operating as an unauthorized securities exchange’ in the U.S., bro’. He was right.” Thus, he added that Binance’s arguments comparing cryptocurrencies “to supermarket items like oranges (…) are absurd,” as well as that Binance’s cryptocurrency sales should be considered investment contracts under the Howey Test – which we explained in the aforementioned publication.
The SEC, in effect, insisted that BNB’s initial coin offering harmed securities law, just as Binance USD in conjunction with performance-generating programs such as Vault and Earn constituted investment contracts.
An extract from the SEC’s statement reads as follows
As alleged in the Complaint, Defendants established two crypto asset trading platforms, the Binance.com Platform and the Binance.US Platform (collectively, “Binance Platforms”), where they have made crypto assets available for trading by investors in the United States and around the world, including at least 12 crypto assets and three investment programs that are offered and sold as investment contracts and, therefore, securities under the federal securities laws as interpreted by Howey and its progeny
The SEC also rejected Binance’s argument that Binance violated the important questions doctrine, based on a 2022 US Supreme Court ruling that Congress does not delegate authority to agencies, which other cryptocurrency companies have used as an argument to curb the SEC’s authority. In the regulator’s view, recognizing Binance’s application would “wipe out decades of fundamental precedent under which the nation’s securities laws operate, bringing with it a rigid framework that would upend the current “broad and flexible regime.”
The SEC statement is available here: https://www.courtlistener.com/docket/67474542/172/securities-and-exchange-commission-v-binance-holdings-limited/