Binance’s attempts to mitigate charges from the SEC largely failed after a federal judge upheld most of the agency’s complaints accusing the company of offering unregistered investment products and violating anti-fraud provisions.
The ruling found most of the agency’s arguments valid, and rejected certain arguments Binance made that were rejected by its peers, such as the idea that the SEC lacks authority to regulate the cryptocurrency industry under the leading question doctrine.
The court also ruled that Binance founder and former CEO Changpeng Zhao, who is currently serving a prison sentence from the Justice Department in a separate case on charges against Binance, could be held personally liable for Binance’s violations given his control over the company.
But the judge also dismissed certain claims related to some of the charges. For example, Binance’s initial sale of BUSD was deemed appropriate by the court because “the description of the asset, the method of sale, and the method of distributing the proceeds from the sale were significantly different from what was claimed.” B&B
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“The allegations do not meet the standards of the Howey test,” Judge Amy Berman Jackson wrote in her decision. Judge Jackson also dismissed claims related to secondary sales of BNB and Binance’s Simple Earn program. However, only one of the 13 charges was filed against Binance’s Earn Vault (related to the sale of BUSD). Fully rejected.
Although the ruling appears to harm Binance’s prospects in the SEC case, legal experts in the cryptocurrency industry celebrated Judge Jackson’s dismissal of the secondary sales charge. “The ruling dismissing the SEC’s claims related to secondary market sales by third parties is clearly a win for the larger cryptocurrency industry,” cryptocurrency attorney James “MetaLawMan” Murphy posted on X.
Judge Jackson also chastised the agency for appearing to argue both sides of the issue: whether, once sold as a security, a cryptocurrency asset must retain that designation in perpetuity. “During the hearing on the motion, the SEC appeared to argue both sides of the issue, at several points going out of its way to deny that it intended to assert that once an asset is sold as a security, it retains that character forever… while at other points leaving the distinct impression that that is precisely what it meant,” Judge Jackson wrote.
Jackson’s decision gave the overall impression that rulings on cryptocurrency assets should be made on a case-by-case basis, and it is unlikely that there will be a broad statement on whether all cryptocurrency assets represent investment contracts. “…the determination of whether a sale constitutes an investment contract must be made based on the entire circumstances surrounding such sale and an objective buyer’s understanding,” the filing states, echoing the court’s ruling in Ripple . example.
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