Binance and its former CEO Changpeng “CZ” Zhao are pushing back against the U.S. Securities and Exchange Commission (SEC) in an ongoing legal battle over allegations that Binance violated securities laws in its handling of certain cryptocurrencies. On November 4, Binance’s legal team filed a motion requesting the court dismiss the SEC’s latest amended complaint, which now includes claims involving additional tokens like Axie Infinity Shards (AXS).
In the motion, Binance’s lawyers argued that the SEC’s amended complaint fails as a matter of law, mischaracterizing secondary market transactions of crypto assets as securities transactions. The defense noted that while the court has acknowledged that crypto assets can potentially be part of an investment contract, each transaction must meet securities law criteria independently, something the SEC’s claims allegedly fail to do.
“Secondary market resales of the assets long after they were first distributed by their developers are not ‘securities’ transactions,” Binance’s legal team argued in its motion.
SEC’s Argument on “Blind Transactions” and Binance’s Defense
The SEC’s amended complaint contends that Binance’s BNB token sales involved “blind transactions,” where buyers on Binance and Binance.US exchanges were unaware they were purchasing tokens directly from Binance Holdings. Such blind transactions, where transaction details about token origin are obscured, are common in the crypto industry, especially given the complexity of smart contracts. The SEC claims that because some investors might expect asset value to appreciate, even these secondary sales qualify as securities transactions.
Binance’s lawyers argue this logic fails to satisfy the court’s previous ruling, which clarified that digital assets themselves aren’t inherently securities and that transactions must meet specific criteria to be deemed as such. The legal team further cited a precedent set in a July 2023 ruling involving Ripple’s XRP sales. In that case, Judge Analisa Torres ruled that some XRP transactions did not violate securities laws because they were “blind bid or ask transactions,” where buyers didn’t know whether their funds were going directly to Ripple.
Binance Asks Court to Dismiss SEC’s Amended Complaint Without Further Amendment
Binance’s defense requested that the SEC’s complaint be dismissed “with prejudice,” meaning the SEC would be barred from further amending its claims. According to the filing, Binance believes the amended complaint has “failed as a matter of law,” and additional revisions would not substantiate the SEC’s argument.
The SEC’s case against Binance represents part of a broader regulatory scrutiny of cryptocurrency exchanges, which began when the SEC filed its lawsuit against Binance in June 2023. This legal challenge is expected to set significant precedents for the crypto industry, particularly on whether or not secondary market transactions of crypto assets are classified as securities.
Implications for the Crypto Industry
The outcome of the SEC’s case against Binance could have wide-ranging effects on the regulatory landscape for crypto in the United States. A decision in Binance’s favor could restrict the SEC’s ability to regulate secondary market sales of crypto assets, whereas a ruling favoring the SEC could expand the regulator’s reach into the secondary crypto market, subjecting more transactions to securities laws.
This case remains a crucial moment for Binance and the broader crypto industry as they navigate complex legal frameworks and regulatory challenges surrounding digital assets and securities classifications.
