The US Federal Court has handed the cryptocurrency industry another important victory, ruling that secondary sales of cryptocurrencies and BNB tokens do not constitute securities.
According to Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia, the secondary sale of cryptocurrencies and BNB (BNB) does not constitute a securities offering.
In a significant victory for Binance.US, the judge dismissed several claims brought by the U.S. Securities and Exchange Commission, according to a July 2 announcement from Binance.
“The court ruled that the SEC failed to argue that the purchasers in the secondary market sale acquired the BNB with the expectation of profit rather than for any other use, which is a key criterion for passing the Howey test (the legal framework the Supreme Court laid out to determine whether a transaction qualifies as an investment contract).”
The SEC has begun cracking down on cryptocurrency exchanges in the wake of the FTX collapse in an effort to avoid a similar collapse. But the regulator’s approach has been widely criticized for potentially stifling innovation.
This ruling could have a positive impact on other ongoing legal battles, such as the SEC v. Ripple lawsuit.
Related: Commissioner Mark Uyeda Slams SEC’s Approach to Crypto Filings as ‘Flawed’
Cryptocurrencies are not securities
In a major victory for the cryptocurrency industry, Judge Jackson ruled that cryptocurrency tokens themselves are not securities.
According to the ruling, this means that cryptocurrencies are not investment contracts under the SEC’s jurisdiction.
“The court ruled that the SEC’s approach obscured the issue and ignored the U.S. Supreme Court’s controlling precedent. The court also emphasized that the focus should be on whether the circumstances surrounding each transaction make it a securities transaction.”
The judge also ruled that the focus should be on the circumstances of each token sale, as cryptocurrencies themselves are not considered securities.
The ruling came as a relief to investors. The SEC had previously said 68 cryptocurrencies were securities, and added BNB to the list along with nine others in June 2023 as it continued its lawsuit against Binance and Coinbase.
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SEC vs Binance
In June 2023, the SEC sued Binance and Coinbase for violating securities laws. In its lawsuit against Binance, the SEC alleged that the company and its founder Changpeng Zhao embezzled billions of dollars in user funds.
Despite no evidence of embezzlement, Binance was charged with violating anti-money laundering laws and agreed to pay a fine of $4.3 billion, one of the largest criminal fines in history.
The next court hearing in the Binance v. SEC case is scheduled for July 9.
The U.S. arm of the world’s largest exchange has signaled its readiness for a lengthy legal probe, saying in a June 2 post:
“On Friday, the court ruled to continue the SEC’s lawsuit against Binance.US. We are prepared for this and look forward to seeing this case move forward in the court system.”
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