In the lawsuit between the US Securities and Exchange Commission (SEC) and Binance, the regulator has filed a notice of supplemental authority, citing the judgment in SEC v. Terraform Labs as a key precedent. This move is a strategic effort by the SEC to leverage the Terra ruling in its case against Binance, Binance.US, and former CEO Changpeng ‘CZ’ Zhao.
SEC Modifies Legal Strategy Against Binance
The SEC’s argument hinges on the Terra case’s interpretation of the “investment contract” definition within the context of cryptocurrency offerings. The SEC posits that the court’s application of the Howey Test to classify UST, LUNA, wLUNA, and MIR as investment contracts, and therefore as securities, is directly relevant to the products and services offered by the exchange. This includes the stablecoin BUSD, the staking service, BNB Vault, and the Simple Earn program.
In their filing, the SEC emphasizes, “The opinion is accordingly relevant to the court’s consideration of defendants BAM Trading Inc.’s and BAM Management US Holdings Inc.’s motion to dismiss.” This statement underlines the SEC’s stance that the Terra ruling should influence the court’s decision on whether to dismiss Binance’s motion.
The SEC further argues that the Terra case addressed efforts to “cast aside decades of settled law” regarding investment contracts, asserting that an investment contract doesn’t necessarily mean a traditional contract, transaction, or scheme.
By drawing parallels between the Terra case and the Binance lawsuit, the SEC is effectively asserting that the digital assets and services offered by the exchange fall under the purview of securities law, similar to those in the Terra case.
This legal maneuver is part of a broader narrative of increasing SEC scrutiny over cryptocurrency exchanges and their compliance with US securities laws. The exchange, in response to the SEC’s allegations, has moved to dismiss the lawsuit, challenging the SEC’s legal basis for the suit and arguing that the regulator’s claims do not apply to the actual conduct being analyzed.
Landmark Rulings On The Horizon
The legal battle’s implications extend beyond the courtroom, affecting the exchanges’ internal dynamics. Binance.US’s President and CEO, Brian Shroder, resigned, with Norman Reed taking over as the interim CEO. Additionally, the firm announced layoffs, affecting about one-third of its workforce. Moreover, Changpeng Zhao stepped down as CEO and is currently not allowed to leave the United States.
This high-profile case remains a pivotal point in the evolving regulatory landscape of cryptocurrencies in the United States. The SEC’s reliance on the Terra ruling in the Binance case underscores the importance of victories by crypto players in the US courts.
Both the SEC case against Binance and against the largest US exchange Coinbase are landmark cases that will come to an end this year and whose outcome will shape the crypto landscape.
At press time, BNB traded at $323.4.
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