Binance, Binance.US, and Changpeng Zhao (CZ), the CEO of Binance, have jointly filed a motion to dismiss a lawsuit brought by the United States Securities and Exchange Commission (SEC) in June. The lawsuit alleges that the cryptocurrency exchange Binance and its affiliates unlawfully listed unregistered securities in the form of various cryptocurrencies for trading and investment by U.S. investors. In their filings to the United States District Court, the defendants argue that the SEC’s claims lack plausibility and that the regulator is attempting to assert authority over the cryptocurrency industry retroactively.
The heart of the defendants’ argument revolves around the SEC’s alleged overreach of authority. They contend that the SEC has not provided clear regulatory guidelines for the cryptocurrency sector, yet it seeks to impose liability for crypto asset sales dating back to July 2017. This, they argue, is before the SEC offered any public guidance on cryptocurrency, making the lawsuit’s foundation shaky. Binance and CZ’s legal team assert that the SEC’s lawsuit is not grounded in existing securities laws.
One critical point of contention is the SEC’s broad interpretation of what constitutes an “investment contract.” The defendants argue that the agency is defining this term too expansively, encompassing nearly all crypto assets and transactions as securities. This move, they assert, misinterprets securities laws as they apply to crypto assets and distorts the legislative text.
The filings also raise the issue of the “major questions doctrine,” a Supreme Court ruling that advises federal agencies to await Congressional authority when dealing with significant economic or political issues. The defendants argue that since 2019, Congress has considered multiple proposals to create a coherent framework for crypto assets and their trading platforms. However, none of these proposals would grant sole regulatory jurisdiction over the crypto industry to the SEC. Despite this, the SEC has proceeded with the lawsuit, claiming violations against Binance Holdings Limited (BHL) and Changpeng Zhao.
The legal battle surrounding the SEC’s authority over digital assets has been divisive in the courts. Some judges believe that Congress needs to clarify the regulatory treatment of cryptocurrencies, while others argue that crypto is not significant enough to warrant such action. While the House Financial Services Committee has moved crypto-specific bills forward for a vote in the full House, the fate of these bills in the Senate remains uncertain.
In a separate filing on the same day, Binance.US (legally known as BAM Trading Services Inc.), the American affiliate of Binance, also sought to have the charges against it dismissed. The SEC’s lawsuit against Binance and its affiliates followed a similar action by the Commodity Futures Trading Commission (CFTC), which sued Binance for failing to register and for violating its guidelines. These regulatory actions have had a significant impact on trading activity at Binance.US, with daily trading volumes plummeting over 98% since September 2022. In response, Binance.US laid off 30% of its remaining workforce on September 13, with its president and CEO, Brian Shroder, leaving the company.