SEC Hasn't Met Legal Requirements to Sue, Binance Says in Latest Bid to Dismiss Lawsuit

Binance responded to an SEC filing, arguing that the regulator's arguments weren't applicable to the actual conduct it was analyzing.

AccessTimeIconDec 13, 2023 at 3:29 a.m. UTC
Updated Mar 8, 2024 at 6:36 p.m. UTC

Binance, Binance.US and Changpeng Zhao argued that the U.S. Securities and Exchange Commission (SEC) did not meet the requirements of the “Howey Test” in its suit against the two companies and their founder in a new filing Tuesday.

Binance and Zhao, more commonly known as “CZ,” filed a reply to the SEC alongside Binance.US, which submitted its own separate but similar filing arguing that the SEC did not show that the exchanges’ U.S. customers had any contracts that would meet the definition of an “investment contract,” or that other elements of the Supreme Court case were met.

It’s the latest bid to dismiss the lawsuit filed by the federal regulator in June when the SEC alleged that Binance and Binance.US allowed the general public to buy and trade unregistered securities by listing certain cryptocurrencies and offering a staking service.

Binance, which recently settled different charges with the U.S. Department of Justice, Commodity Futures Trading Commission, Office of Foreign Asset Control and Financial Crimes Enforcement Network, filed to dismiss the SEC lawsuit in September, arguing the regulator was overreaching its authority (it made a similar argument in a filing to dismiss a CFTC suit in July).

In Tuesday’s filings – which are responding to the SEC’s own reply to the motion to dismiss – both Binance and Binance.US argued that the regulator hadn’t shown there were any obligations to the exchange’s users after they purchased certain cryptocurrencies, suggesting there was no investment contract as needed by the Howey Test.

DOJ settlement

Binance also pushed back against the SEC, adding the exchange’s guilty plea with the DOJ and consent order with FinCEN, or Zhao’s own DOJ plea, in the ongoing case.

The SEC argued that the settlements showed that Binance was well aware it was operating in the U.S., serving U.S. customers and otherwise tapping infrastructure within the U.S. for transactions.

“Zhao’s and Binance’s plea agreements and the Consent Order provide further grounds for this Court to deny the Joint Motion [to Dismiss],” the SEC said.

In another Tuesday filing, Binance argued that securities laws wouldn’t apply like the Bank Secrecy Act or International Emergency Economic Powers Act (two laws governing the charges Binance and Zhao settled) did.

“Jurisdictional admissions under the BSA do not bring any of the SEC’s claims within the reach of the securities laws,” Binance and Zhao claimed.

The filing also argued that the settlements and consent order didn’t implicate securities laws.

“That facts in the plea agreements with the Department of Justice show that BHL and Mr. Zhao violated the Bank Secrecy Act (BSA) does not say anything about whether there was fair notice of the SEC’s theory that the crypto assets at issue were securities under the Securities Act or the Exchange Act,” the filing said.

Edited by Sam Reynolds.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.