SEC, Binance clash in court over cryptocurrency oversight

World’s largest cryptocurrency exchange Binance faced the U.S. Securities and Exchange Commission (SEC) in court on Monday, as the commission defended its jurisdiction over specific cryptocurrency assets and countered Binance’s request to dismiss its lawsuit.

The SEC filed a lawsuit against Binance Holdings and its ex-CEO, Changpeng Zhao, in June 2023. This lawsuit is one of Binance’s last major legal challenges in the U.S.

The allegations include deceptive practices towards customers, neglecting to prevent U.S. investors from using, redirecting funds to separate investment funds under Zhao’s ownership, and functioning as an unregistered exchange. The SEC also identified 12 tokens on the platform, including BNB and BUSD, as securities.

In November, Binance reached a $4.3 billion settlement with the Department of Justice and the Commodity Futures Trading Commission for violations related to illicit finance. Zhao also admitted guilt in breaking U.S. anti-money laundering laws and resigned from the CEO position. However, the SEC’s legal case continues to loom over the exchange.

Different Views on Howey Test

In the court hearing, U.S. Judge Amy Berman Jackson questioned both parties regarding whether assets such as BNB and BUSD, among others, align with or deviate from the Howey Test criteria. The Howey Test is a set of parameters the SEC employs to ascertain whether an asset qualifies as a security.

Binance’s legal representatives emphasized that an asset must involve an actual contract to be a security. However, the judge later pushed back this stance, arguing that case law has stated the statute was designed to be broad.

During the hearing, Matthew Gregory, a lawyer for Binance, also accused the SEC of sending conflicting messages to the industry about crypto tokens.

“They’re telling the industry [to] come in and register while simultaneously with their other hand holding the door closed and preventing any viable path to do that,” said Gregory.

The SEC’s lawyer expressed disagreement with Binance’s notion, pointing to guidance released by the agency over the years.

“Howey is clear and you don’t need a regulator to reach out to you specifically to remind you that you might be violating the securities laws,” the lawyer said.

According to the SEC, Binance’s consistent promotion of its business and the BNB and BUSD tokens generated reasonable profit expectations for buyers. In contrast, Binance’s legal team argued that promotion alone cannot be considered a factor, as any business engages in self-promotion.

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