Attorneys for Binance and its former CEO, Changpeng Zhao, have submitted a new motion requesting the district court to dismiss the lawsuit filed by the United States Securities and Exchange Commission (SEC).
The lawsuit, filed in June 2023, accused Binance and Zhao of operating unregistered exchanges, broker-dealers, and clearing agencies and misrepresenting trading controls on the platform. The SEC also charged the exchange with violating unregistered sales of BNB and BUSD tokens.
SEC Amends Lawsuit
The SEC recently amended the lawsuit, adding new charges accusing Binance of being involved in securities transactions. These transactions include reselling tokens created by others, developers selling their tokens, initial exchange offerings (IEOs), paying employees with BNB, and depositing crypto assets into the Binance Simple Earn program.
Notably, to determine if these transactions fall under SEC authority, each must meet the Howey test, which requires an investment contract, expectation of profits, investment in an enterprise, and profit derived from others’ efforts.
Binance Responds to Lawsuit Amendments
Binance claims reselling tokens is not a securities transaction. It explained that when buyers and sellers trade, they are unknown to each other and do not invest in the enterprise. It further noted that tokens have everyday uses like payment, fees, and gaming and do not meet the Howey test for securities.
The pioneer exchange also argued that developers selling their tokens are similar to resales and lack investment contract features. According to the filing, tokens are marketed for use cases, not investment, and buyers do not expect profits from developers’ efforts.
Concerning paying employees with BNB, the exchange attorneys claim the token is an alternative currency, not an investment. Hence, while employees receive payment in the Binance-affiliated coin, they are not investing in Binance. The lawyers further argued that Simple Earn is not an investment contract. Instead, users deposit crypto and receive interest but do not buy shares.
Binance Legal Woes in U.S.
Aside from regulatory lawsuits, Binance has also faced other legal challenges. Earlier this year, the exchange was sued by U.S. victims and families affected by the 2023 Hamas-led attack on Israel, alleging that Binance facilitated Hamas’s terrorist activities by providing funding.
In Q2 2024, its founder was sentenced to four months in prison for violating U.S. money laundering laws. As part of a settlement with the U.S. Department of Justice, it paid $4.3 billion in fines, and Zhao stepped down as CEO of Binance.
