U.S. District Judge Allows Majority of SEC Case Against Binance to Proceed, Dismissing Charges Related to Secondary Sales
In a recent development, a federal judge has dismissed a portion of the U.S. Securities and Exchange Commission’s (SEC) lawsuit against popular crypto exchange Binance and its founder, Changpeng Zhao. However, several charges, including those against Binance.US, the holding company for Binance, have been allowed to proceed.
Judge Amy Berman Jackson of the District Court for the District of Columbia ruled that the SEC’s allegations against Binance for its initial coin offering, ongoing sales for BNB, BNB Vault, staking services, failure to register, and fraud can move forward. On the other hand, charges linked to secondary BNB sales and Simple Earn were dismissed based on Binance and Zhao’s motion to dismiss.
Last year, the SEC filed a lawsuit against Binance, Binance.US, and Zhao, accusing the exchanges of providing unregistered broker, trading, and clearing services for unregistered digital asset securities in the United States. Coinbase, Kraken, ConsenSys, and MetaMask have also faced similar charges from the regulator.
Judge Jackson’s order acknowledged that the SEC’s claims in most of the charges were credible, noting that certain district courts tasked with SEC enforcement actions related to cryptocurrencies had made distinctions between investment contracts and the tokens themselves. In doing so, the judge found these distinctions to be in line with the Supreme Court’s earlier interpretations of the term “investment contract,” which falls under the definition of a “security.”
It is worth mentioning that Zhao is presently serving a 4-month sentence related to a sanctions violation brought by the Department of Justice and the Treasury Department. The SEC’s case against him is separate from this criminal charge.
Judge Jackson referenced Judge Analisa Torres’ 2023 ruling in the SEC’s case against Ripple Labs to support Binance’s motion to dismiss the secondary BNB sales claim. This ruling emphasized the importance of considering the economic reality of token transactions when applying securities laws.
Contrary to arguments made, Judge Jackson rejected the notion that the SEC cannot initiate enforcement actions against crypto entities using the “major questions doctrine.” The judge stated that the industry’s significance alone is insufficient to invoke this doctrine, which dictates that Congress must explicitly assign authorities to federal agencies in significant sectors.
A hearing for this case has been scheduled for July 9.