The SEC’s reliance on the claim that BNB tokens reflect investment contracts throughout their lifecycle is insufficient, according to the court.
On June 28, Judge Amy Berman Jackson signed a court filing in which she stated that the US Securities and Exchange Commission (SEC) had been unsuccessful in its attempt to classify the Binance USD (BUSD) stablecoin and BNB, Binance’s native token, on secondary markets as securities.
The court dismissed the secondary BNB sales claim by citing Judge Analisa Torres’ 2023 ruling in the SEC vs. Ripple Labs case. It indicated that the determination of whether a secondary market sale is a sale of an investment contract is contingent upon the economic actuality of each specific transaction and the totality of the circumstances.
The filing says that the SEC’s argument was based on the thought that any sale of BNB tokens after the original sale as an investment contract would also be seen as a sale of a security.
Nevertheless, the court ruled that this claim is unfounded, as it fails to account for the unique context and specifics of each secondary transaction. In other words, the mere fact that BNB tokens were initially marketed as investment contracts does not imply that they will remain securities throughout their lifecycle.
The court also emphasized the inconsistencies in the SEC’s posture and observed that additional information is required to substantiate an expectation of profits from secondary sales under the Howey test.
Scott Johnsson, the general partner of Van Buren Capital, characterized the ruling as a “substantial setback” for the SEC.
James “MetaLawMan” Murphy, a counsel who specializes in crypto matters, also expressed his satisfaction with the decision, describing it as “a victory for the broader crypto industry.”
The court’s rejection of the SEC’s argument regarding BNB secondary sales could potentially impact other cases involving crypto exchanges such as Kraken and Coinbase, as they are also subject to similar accusations from the SEC for trading crypto assets that are classified as unregistered securities.
The court primarily supported the SEC in its litigation against Binance, despite dismissing the SEC’s secondary market sales claim.
As previously mentioned, the Securities and Exchange Commission (SEC) has the authority to continue its investigation into Binance’s staking program, the sale of BNB tokens after their initial coin offering (ICO), and potential anti-fraud violations.
The court will also evaluate the SEC’s allegations that Binance’s former CEO, Changpeng Zhao, had a substantial impact on the company and that Binance should have registered as an exchange.
CZ is presently serving a distinct sentence for violating money laundering laws. The SEC vs. Binance lawsuit commenced in June of last year when the securities regulator filed a lawsuit against Binance and its founder, Changpeng Zhao. The lawsuit alleged that Binance was operating illegally in the United States by offering the sale of unregistered securities.
Binance submitted a motion to discharge the SEC litigation approximately three months later, contending that the SEC had exceeded its legal authority. July 9 is the date of the upcoming judicial hearing, as per the most recent court order.
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