SEC Argues Crypto Assets on Binance Platform Qualify as Securities in Response to Dismissal Motion
On November 7, 2023, the Securities and Exchange Commission (SEC) filed an Omnibus Memorandum of Law opposing motions to dismiss its lawsuit against cryptocurrency exchange Binance and its U.S. affiliate BAM Trading.
The SEC lawsuit, filed in June 2023, alleges that Binance and BAM operated crypto asset trading platforms available to U.S. investors without registering with the SEC as exchanges, broker-dealers, or clearing agencies. The SEC claims this violated federal securities laws.
Specifically, the SEC alleges that Binance offered trading in crypto assets that were unregistered securities, including Binance Coin (BNB) and over 10 other digital tokens. It also alleges BAM offered an unregistered securities staking program.
In its motion to dismiss, Binance argued that the SEC did not provide adequate crypto guidelines, misinterpreted securities laws in relation to cryptocurrencies, and characterized the lawsuit as a case of overstepping its authority.
The SEC’s memorandum argues the crypto assets meet the legal test for securities under SEC v. W.J. Howey Co. It claims that Binance and BAM marketed the assets as investments and led investors to expect profits based on the efforts of the issuers and promoters.
The SEC asserts that Binance sold BNB to U.S. investors during its 2017 initial coin offering and to employees as compensation. It also says Binance offered products like BUSD, BNB Vault, and Simple Earn as unregistered securities.
The SEC rejects Binance and BAM’s arguments that the Howey test requires a formal contract with legally enforceable rights. It stated that “no case concluding that, as a matter of law, an investment contract did not exist because “legally enforceable” contractual rights were absent. No such case exists.”
The SEC further argues that Binance’s operations were domestic under U.S. law. It points to Binance’s solicitation of U.S. investors, and U.S. bank accounts, and allegations that Binance knew it operated an “unlicensed securities exchange in the USA.”
Finally, the SEC argues the court has jurisdiction over Binance CEO Changpeng Zhao based on his control over Binance and BAM and his direction of their efforts to serve U.S. investors.
A copy of the original filing can be found here.
