According to a federal magistrate, the SEC’s allegations that Binance, Binance.US and Changpeng Zhao had violated federal securities laws were plausible.
A federal judge dismissed a portion of the U.S. Securities and Exchange Commission’s (SEC) lawsuit against crypto exchange Binance and its founder, Changpeng Zhao. However, the judge permitted the prosecution of other charges, including those against the holding company for Binance.US.
Binance may go on with the SEC’s claims regarding the initial coin offering and ongoing sales of BNB, BNB Vault, staking services, failure to register, and fraud, according to a late Friday ruling by Judge Amy Berman Jackson of the District Court for the District of Columbia. She granted Binance and Zhao’s motion to dismiss allegations related to secondary BNB sales and Simple Earn.
Last summer, the Securities and Exchange Commission (SEC) filed a lawsuit against Binance, Binance.US, and Zhao. The SEC alleged that the exchanges were providing unregistered broker, trading, and clearance services in the United States for unregistered digital asset securities. The regulator has filed comparable accusations against Kraken, Coinbase, Consensys, and MetaMask as of Friday morning.
Judge Jackson wrote in her order on Friday that the SEC had presented a plausible claim for the majority of the allegations it filed.
“The Court observes that many of the district courts that have been presented with SEC enforcement actions involving cryptocurrencies have made an effort to distinguish between the purported investment contracts and the tokens themselves,” she wrote. “The Supreme Court’s earliest pronouncements regarding the meaning of the term ‘investment contract’ are consistent with the differentiation, which is consistent with the extensive list that constitutes the definition of a ‘security.’ The Court finds these observations to be clarifying and persuasive.”
The Department of Justice and the Treasury Department have filed a charge of sanctions violation against Zhao, which is the basis for his current four-month sentence. This criminal allegation is distinct from the SEC’s case against him.
The judge granted Binance’s motion to dismiss the secondary BNB sales claim, citing Judge Analisa Torres’ 2023 ruling in the SEC’s case against Ripple Labs. The judge noted that the economic actuality of the tokens’ transactions was a factor in the application of securities law.
Judge Jackson, like other judges, disregarded arguments that the SEC is unable to file enforcement actions against crypto entities under the “major concerns doctrine,” a Supreme Court precedent that specifies that Congress must direct the authorities of federal agencies in the case of significant industries.
The judge wrote on Friday, “The Court has not been provided with sufficient evidence to determine that the industry, despite its significance, has the broad scope that has prompted courts to apply the doctrine to other industries.”
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