Binance, the world’s largest cryptocurrency exchange, took the Securities and Exchange Commission (SEC) to court on Monday in an attempt to dismiss a lawsuit filed by the regulator. Both parties were asked by the judge why certain cryptocurrencies should be considered securities and subject to SEC rules.
At the hearing, Judge Amy Berman Jackson said: ~ Of U.S. District Court for the District of Columbia Both sides were pressed on whether or not. BNB
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BUSD
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Other assets traded on Binance either meet or do not meet the Howey test criteria, a set of parameters used by the SEC to determine whether an asset is a security.
The SEC sued Binance Holdings and its former CEO Changpeng Zhao. June, It accused the cryptocurrency exchange of lying to customers, failing to restrict U.S. investors from accessing Binance.com, misdirecting capital to segregated investment funds owned by Zhao, and operating as an unregistered exchange. The SEC also stated that 12 tokens on the exchange are securities, including BNB and BUSD.
Monday’s event was the second high-profile showdown involving the agency and cryptocurrency exchange this month. Coinbase and the SEC took turns participating. court at a hearing last week in a separate case.
Disagreement on Howey
Judge Jackson criticized Binance during Monday’s hearing over how its lawyers described the Howey test.
“Howey said that an investment agreement is a quote, a contract, a transaction or a plan, one of three things. He did not mention a contractual transaction or plan,” Jackson said.
Lawyers representing Binance argued that for an asset to be a security, it must involve an actual contract. The judge later vacated it and argued that case law showed the statute was designed to be broad.
Later in the hearing, Jackson asked the SEC’s lawyers if they had received criticism for not being clear to the cryptocurrency industry about how the rules apply.
The SEC’s attorney said he disagreed that the agency had made contradictory statements, citing guidance the agency has issued over the years.
An SEC lawyer said, “Howey’s argument is clear and you don’t need a regulator specifically contacting you to remind you that you may be violating securities laws.”
In the SEC’s view, Binance’s continued promotion of its business and the BNB and BUSD tokens it issued created a reasonable return expectation for those purchasing those tokens. On the other hand, Binance’s lawyers argued that since all businesses promote themselves, the fact of promotion itself cannot be a factor.
Secondary Market Questions
An issue that came up consistently during the hearing was whether token sales on the secondary market should be treated the same as primary token sales by the project that issued them. Binance’s defense team argued that secondary sales taking place on Binance do not pool funds and invest them in a common enterprise, which is one of the Howey test criteria.
The SEC argued that if the tokens had the characteristics of a security, any sale would convey them. Moreover, creating a secondary market for blockchain tokens is a move that will help increase their value, SEC lawyers argued, something buyers know and expect.
The SEC team also argued that BUSD, a stablecoin issued by Binance, should also be considered a security because it was sold as a “package” with services that allow users to earn returns on Binance assets, including BUSD.
The agency mentioned December. summary judgment In the SEC case against Terraform Labs, the judge agreed with the SEC that the Terra (UST) stablecoin was sold as an investment contract because it was the primary use case for monetization through the Anchor protocol. The SEC has been working to: Use this partial win In Terraform’s lawsuit against Coinbase and Binance.
Key Questions Doctrine
Cryptocurrency companies in the crosshairs of SEC enforcement teams have often cited the principle of questioning and argued for Congress to intervene. This doctrine requires agencies to obtain explicit congressional approval to decide on matters of national importance.
Binance argued that this principle applies in their case. If the court agrees with the SEC in this case, it would mean the SEC could “extend its power” to any asset that rises in value, Binance’s lawyer said.
Judge Jackson was less certain about this.
“This may be a trillion-dollar industry, but I don’t want to think that’s appropriate in the very narrow circumstances described in this case,” Jackson said.
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