SEC Files Amended Complaint Against Binance, Targeting Token Listings and Trading Practices
On Thursday, September 12, 2024, the Securities Exchange Commission (SEC) filed a proposed amended complaint in the United States District Court for the District of Columbia, targeting cryptocurrency exchange Binance. This action comes after the SEC’s earlier lawsuit against Binance, which alleged that the exchange failed to register as a securities exchange, clearing agency, and broker-dealer.
The amended complaint focuses specifically on Binance’s token listing and trading practices. It arises in the context of a legal battle that has seen Binance’s founder and former CEO imprisoned, raising questions about the exchange’s operational integrity. The SEC’s renewed efforts signal its intent to pursue claims regarding Binance’s Simple Earn product and its BNB token sales, which the agency argues are central to its case.
In June 2023, the SEC initially filed charges against Binance and BAM Trading, asserting that they misled investors regarding their internal controls and that they were operating without the necessary registrations. A federal judge, Amy Berman Jackson, allowed most of the SEC’s allegations to proceed in a ruling issued in June 2024, although she dismissed claims related to Binance’s secondary BNB sales and the Simple Earn product.
The latest filing indicates that the SEC is not backing down. It reinforces concerns the judge raised about dismissing certain parts of the initial complaint, specifically focusing on ten digital assets that the SEC claims were distributed as unregistered securities. According to the SEC, the dismissal was based on insufficient factual allegations related to the Howey test, which is used to determine whether certain transactions qualify as investment contracts under securities law.
The proposed amended complaint highlights the SEC’s assertion that Binance is acting as an unregistered securities provider. The SEC contends that Binance’s operations include not only token sales but also the facilitation of trading in assets that qualify as securities under U.S. law. This consists of a detailed examination of Binance’s dealings with its native token, BNB, and other cryptocurrencies.
The filing also clarifies the nature of the cryptocurrencies involved. The SEC differentiates between tokens built on various blockchains and those native to specific blockchains, elucidating the infrastructure underlying these digital assets. It emphasizes that Binance’s role is pivotal in the cryptocurrency market, as it allegedly helps facilitate the sale of cryptocurrencies that the SEC views as securities.
Furthermore, the SEC claims that Binance’s practices, such as its BNB token burns and its support for projects utilizing BNB, are designed to enhance the token’s market value. The complaint includes accusations that Binance compensated employees in the U.S., including executives from BAM Trading, in relation to these activities.
In addition to BNB, the SEC lists ten specific digital assets—ADA, ALGO, ATOM, AXS, COTI, FIL, MANA, MATIC, SAND, and SOL—that it argues were sold as unregistered securities on the Binance platform. This list is part of the SEC’s broader strategy to establish that Binance’s operations do not comply with existing securities regulations.
The proposed amended complaint also addresses potential confusion surrounding the terminology used in previous filings. The SEC has eliminated the phrase “crypto asset securities,” clarifying that it does not equate the cryptocurrency itself with being a security. Instead, it now refers to “crypto assets that were offered and sold as securities,” aiming to provide clearer definitions that align with regulatory frameworks.
The SEC’s filing follows a hearing in July 2024, where legal representatives debated the implications of the judge’s earlier decision. Despite the ongoing legal proceedings, the SEC maintains that granting the motion for an amended complaint will not adversely affect Binance or its affiliates. Binance has until October 11, 2024, to respond to the SEC’s motion.
Please contact BlockTribune for access to a copy of this filing.
