Binance is the world’s largest cryptocurrency exchange by trading volume, offering hundreds of digital assets and derivatives to millions of users around the globe. However, the exchange has also faced increasing regulatory scrutiny in recent months, as authorities in several countries have accused it of operating without proper licenses, facilitating money laundering, and violating securities laws.
The cryptocurrency exchange Binance, its U.S. affiliate Binance.US and its founder and CEO Changpeng Zhao (CZ) have filed a motion to dismiss a lawsuit brought by the U.S. Securities and Exchange Commission (SEC) in New York.
One of the most prominent regulators that has taken action against Binance is the U.S. Securities and Exchange Commission (SEC), which has been investigating the exchange for potential violations of federal securities laws. The SEC has not publicly disclosed the details of its probe, but some of the possible issues that it may be looking into are:
Binance’s offering of tokens that may be considered securities, such as stock tokens that track the performance of publicly traded companies, or tokens that represent fractional shares of other cryptocurrencies.
Binance’s handling of customer funds and data, especially in relation to its U.S. subsidiary, Binance.US, which operates under a different legal entity and regulatory framework than the parent company.
Binance’s involvement in market manipulation, insider trading, or other fraudulent activities, such as the recent hack of Poly Network, a decentralized finance (DeFi) platform that resulted in the theft of over $600 million worth of crypto assets, some of which were traced back to Binance accounts.
The lawsuit, which was filed in April 2023, alleges that Binance and CZ violated the federal securities laws by offering and selling unregistered securities in the form of digital tokens on their platforms. The SEC claims that Binance and CZ failed to register or seek an exemption for their offerings, which involved more than 50 different tokens, some of which were deemed to be securities by the SEC.
Binance and CZ argue that the lawsuit should be dismissed for several reasons, including:
The SEC lacks jurisdiction over Binance and CZ, who are not U.S. persons and do not operate in the U.S.
The SEC fails to allege any specific facts that show that Binance and CZ offered or sold any securities in the U.S. or to U.S. investors.
The SEC fails to identify any specific tokens that are securities or explain how they meet the criteria of the Howey test, which is used to determine whether an asset is a security.
The SEC fails to allege any scienter or intent to defraud on the part of Binance and CZ, which is required for a securities fraud claim.
The SEC’s claims are barred by the statute of limitations, as most of the alleged conduct occurred more than five years before the lawsuit was filed.
Binance and CZ also contend that the lawsuit is part of the SEC’s “regulation by enforcement” strategy, which creates uncertainty and confusion in the crypto industry and harms innovation and growth. They assert that the SEC has not provided clear and consistent guidance on how it applies the securities laws to digital assets, and instead relies on retroactive enforcement actions that are based on vague and subjective standards.
Binance and CZ request that the court grant their motion to dismiss the lawsuit with prejudice, meaning that it cannot be refiled. They also seek an award of their attorneys’ fees and costs. The motion to dismiss is expected to be heard by Judge Alison J. Nathan in the coming months. The outcome of this case could have significant implications for the crypto industry, as it could set a precedent for how the SEC regulates digital assets and exchanges in the U.S.
The SEC has not yet filed any formal charges or taken any enforcement actions against Binance or its US affiliate, but it has reportedly issued subpoenas and requests for information to the exchange and its affiliates. The SEC has also warned investors about the risks of trading on unregistered platforms that may not comply with U.S. securities laws.
Sometimes you just fight as delay is also a strategy looking at how Intel’s case has played out over years.
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