Binance Vs SEC: Legal Showdown Escalates As Exchange Responds To Regulatory Accusations

According to a Reuters report, a federal judge in Washington, D.C., demanded that Binance, the world’s largest cryptocurrency exchange by trading volume, provide a robust defense for its motion to dismiss the case brought against it by the US Securities and Exchange Commission (SEC). 

Binance seeks the dismissal of the lawsuit, which alleges rule-breaking and fraud, representing one of the exchange’s final significant legal challenges in the United States.

Allegations Of Manipulation And ‘Unregistered Securities’

As reported by Bitcoinist, the SEC, in June, accused Binance, its former CEO Changpeng Zhao, and Binance’s US arm of inflating trading volumes artificially, mismanaging customer funds, failing to restrict US customers from its platform, and misleading investors regarding its market surveillance controls. 

Furthermore, the regulator asserted that Binance illicitly facilitated trading multiple crypto tokens classified as unregistered securities.

According to Reuters, during the recent hearing, the judge probed the exchange’s legal representation regarding a central argument for dismissal: the claim that the SEC lacks the authority to regulate the specific crypto assets under scrutiny due to their failure to meet the definition of an investment contract.

While the Securities Act of 1933 defines “security,” legal experts often refer to a US Supreme Court case to determine whether an investment product qualifies as a security.

Binance Lawyer Clashes With Judge On SEC Regulation

Judge Amy Berman Jackson challenged Binance’s lawyers on how their argument for new regulation in the crypto sector aligns with existing case law, which suggests that securities laws are designed to be adaptable and safeguard investors. 

Journalist Eleanor Terret, covering the hearing live, reported that the Binance lawyer told Judge Jackson, “The world is not a void waiting to be filled by SEC regulation.”

The Binance lawyer further contended that decentralized autonomous organization (DAO) tokens should be considered investment contracts due to the voting power structure tied to token ownership. Judge Berman Jackson, in a notable contrast to Judge Failla in the recent Coinbase hearing, critically scrutinized Binance’s legal representatives during the proceedings, according to Terret. 

Binance’s legal battles extend beyond the current SEC lawsuit. Last year, the exchange agreed to a $4.3 billion settlement with the US Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) for violations related to illicit finance. 

As part of the settlement, former CEO Changpeng Zhao pleaded guilty to breaching US anti-money laundering (AML) laws and committed to stepping down from his leadership position. 

As the legal proceedings unfold, the exchange must mount a robust defense against the SEC’s fraud and market manipulation allegations. The outcome of this case will most likely shape the regulatory landscape surrounding cryptocurrencies and serve as a critical precedent for future enforcement actions.

During the ongoing hearing, the value of Binance Coin (BNB) has experienced a significant decline, plummeting by more than 2% within hours. As a result, BNB’s current trading price stands at $311.

Featured image from Shutterstock, chart from TradingView.com