Background of the Binance SEC Lawsuit
The SEC filed a lawsuit in June 2023, accusing Binance and its affiliate entities, including BAM Trading Services Inc. and BAM Management US Holdings, of violating U.S. securities laws.
The regulator claims that Binance engaged in illegal securities offerings, arguing that certain digital assets traded on the platform qualify as securities under U.S. law.
This lawsuit has been central to the ongoing regulatory battle between the SEC and cryptocurrency exchanges, as authorities seek to bring greater oversight to the rapidly growing market.
In its lawsuit, the SEC named Changpeng Zhao as a defendant, holding him accountable for Binance’s alleged violations.
Last month, the SEC updated its initial complaint, making additional claims and accusing Binance of improperly handling customer assets, violating anti-money laundering regulations, and conducting unregistered securities offerings.
Zhao’s Response: SEC’s Lack of Clarity
In a motion filed earlier this week, Zhao’s legal team argues that the SEC’s lawsuit is too vague and that the regulator has failed to clarify the standards needed for determining whether a particular cryptocurrency transaction qualifies as an investment contract.
Zhao’s team claims that the SEC is arbitrarily picking winners and losers in the market without providing clear guidelines on what constitutes a security in the context of digital assets.
The motion emphasizes that the SEC’s legal framework is so poorly defined that it could equate securities to something as unrelated as Beanie Babies, a popular collectible toy line from the 1990s.
Zhao’s legal team goes further, stating that the SEC’s “undefined test” is unreasonable and does not provide market participants with the necessary tools to determine whether their transactions could be considered securities.
The motion highlights specific instances where the SEC allegedly misrepresented cryptocurrency transactions, calling into question the accuracy of the claims against Binance and Zhao.
Binance Seeks to Dismiss Monetary Penalties
Binance also seeks to dismiss the SEC’s request for financial penalties. The exchange argues that the SEC’s demand for the return of funds lacks a solid legal foundation and would serve only to further complicate the litigation process.
Zhao’s team contends that this request would unnecessarily delay proceedings by adding burdensome discovery processes related to the finances of the defendants, which they argue are irrelevant to the core legal issues at hand.
Challenges to SEC’s Restrictions on Zhao’s Participation
In addition to the motion to dismiss the lawsuit, Binance has also asked the court to disregard the SEC’s demand for restrictions on Zhao’s involvement in the U.S. securities markets through entities like BAM or Binance.
This request stems from an earlier settlement agreement in which Zhao was barred from managing Binance’s operations.
Zhao’s team argues that the SEC’s request for further restrictions is redundant, as the previous settlement already adequately addresses the issue.
Conclusion: SEC’s Legal Theory Under Scrutiny
In conclusion, Zhao’s legal team maintains that the SEC’s legal theory is fundamentally flawed. Despite over a year of investigation, hundreds of new allegations, and a detailed 89-page court filing, Binance asserts that the claims brought by the SEC are legally insufficient.
Zhao’s team stresses that the problem lies not in the facts of the case, but in the SEC’s legal approach, which they argue remains unclear and inconsistent.
The ongoing legal battle between Binance and the SEC is likely to shape the future of cryptocurrency regulation in the United States.
As both sides continue to present their arguments, the broader industry will be watching closely to see how the courts will define digital assets in the context of U.S. securities law.
