Crypto Exchange Binance Mounts Strong Defense in Reply Brief Against CFTC Regulatory Claims

News | October 26, 2023 By:

On October 23, 2023, cryptocurrency exchange Binance and its CEO Changpeng Zhao filed a reply brief in support of their motion to dismiss the civil enforcement action brought against them by the Commodity Futures Trading Commission (CFTC) in March 2023.

In the reply, Binance argues that the CFTC’s response brief fails to overcome the deficiencies in the original complaint. Binance maintains that the CFTC lacks personal jurisdiction over the foreign Binance entities and over Zhao as an individual. Additionally, Binance reiterates that the CFTC impermissibly seeks extraterritorial application of laws that were not intended by Congress to apply overseas.

With regards to specific claims, Binance asserts that Count I and portions of Counts II-IV should be dismissed as extraterritorial under the transactional test established by Morrison v. National Australia Bank. For swaps-related claims, Binance argues its activities do not meet the statutory requirement of having a “direct and significant” effect on U.S. commerce.

Binance also attacks the foundation of the anti-evasion claim in Count VII. It argues the complaint fails to identify any underlying swaps provisions evaded or allege willful conduct, as required by Regulation 1.6. Additionally, Binance contends the anti-evasion theory cannot save the CFTC’s other claims lacking domestic allegations.

Finally, Binance disputes that the complaint adequately alleges it operated a board of trade under Count I or functioned as a Futures Commission Merchant for purposes of Counts III, V, and VI.

Through its 46-page reply, Binance strongly rebukes the CFTC’s expanded jurisdictional theories and Commerce Clause arguments. If accepted by the court, Binance’s position would significantly curb the CFTC’s ability to regulate digital asset trading platforms serving U.S. customers from abroad.

The ball is now in the CFTC’s court to file an opposition brief by November 13. With high stakes for the global crypto industry, the December hearing promises intense debate over how to balance regulatory oversight with international commerce in new digital technologies.

A copy of the original filing can be found here.