Binance Lawsuit Faces Hurdle as SEC Finds Favorable DC Judge

Binance faced the SEC in Washington, DC, for a four-hour hearing on Monday. The exchange sought to dismiss charges made against it, its US sector, and former CEO Changpeng Zhao last summer. The US Securities and Exchange Commission again seeks a federal judge to support its claim to regulate the cryptocurrency industry.

Judge’s Controversy & Legal Interpretations

Judge Amy Berman Jackson immediately doubted Binance had a leg to stand on. Questioning counsel, she challenged the argument against the SEC applying securities laws to crypto, highlighting the law’s outdated design.

How do I score the arguments that you’re making about not using an ill-fitting, big mechanism like an investment contract to embark on the regulation of this whole new industry without a clear congressional mandate with the case law that says over and over and over again that it was designed to be…flexible, it was intended to protect the investing public? She asked Binance Holdings Limited attorney Jason Mendro.

“I agree that they say that the securities laws are intended to be broad,” Mendro responded. “I’m not disputing that. But the statute has another purpose other than to be broad,” adding there must be limiting factors, else real estate could be a security.

The SEC filed 13 charges against Binance in June 2023, which alleged 13 misdemeanors for offering and selling unregistered securities. The charges pertained to Binance’s BNB and BUSD tokens and other tokens listed on their platforms. Additionally, the regulator claims that the exchange commingled client assets.

During the interview with the Binance team, Jackson displayed signs of impatience and eventually admonished them. He urged them to stop insisting that investment contracts could only exist with a physical contract.

Jackson wondered many things, but one was whether Binance’s team had rightly interpreted the Howey test investment contract definition. We are going to be wasting a lot of time going on a Howey factor concerning each asset that’s been alleged if we comb through those, she said.

“I don’t think that is what it says,” she told Mendro at one point.

SEC and Coinbase’s recent Manhattan hearing aimed to dismiss charges, continuing their legal clash in another episode of ongoing proceedings. The next day, the SEC filed a lawsuit against Binance, presenting its case against the cryptocurrency exchange. Simultaneously, the SEC advocated expedited regulatory approval of its inaugural exchange-traded fund to track bitcoin futures.

Crypto Industry Implications: Major Questions Doctrine

Defense teams for Coinbase and Binance appealed on the major questions doctrine. That sort of appeal says courts won’t read congressional law as allowing agencies to rule on issues of “major” political or economic significance.

“Given the sweeping nature of the SEC’s statutory arguments, far more is at stake here than even the enormous impact on the crypto market,” Binance wrote in its motion to dismiss.

Jackson admitted Monday that this case has implications for the crypto industry. But she harbored doubts that the major questions doctrine applies in this case.

In the Coinbase case, Southern District of New York judge Katherine Polk Failla asked whether the doctrine could apply. She said she wanted to stay within the lines and “take power. I don’t have to stop something I shouldn’t.”

Binance’s hearing came around six weeks after the deal between the exchange and Zhao. Moreover, the plea agreement involves the US Attorney-General, the Department of Justice, the Commodity Futures Trading Commission, and the Department of Treasury.

Furthermore, It encompasses a combined financial penalty of $4.3 billion. Later this month, the court will sentence Zhao. In the coming weeks or months, Judge Failla will decide whether to throw out the SEC case against Coinbase.

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