Binance Challenges SEC's Lawsuit Citing Lack of Legal Standing

• Binance, Binance.US, and Changpeng Zhao Challenge SEC's Application of Howey Test
• Efforts to Dismiss SEC Lawsuit
• Arguments Against SEC Overreach
• Reply to SEC's Motion to Dismiss
• Response to Inclusion of Plea Agreements
• Settlements Do Not Imply Violation of Securities Laws

Binance, Binance.US, and Changpeng Zhao Challenge SEC's Application of Howey Test

Binance and Binance.US, along with their founder Changpeng Zhao, commonly referred to as CZ, have challenged the U.S. Securities and Exchange Commission's (SEC) application of the Howey Test in a recent legal filing. They argue the SEC has failed to demonstrate that the exchanges' U.S. customers held any contracts fitting the definition of an investment contract or that other criteria of the Supreme Court case were met.

Efforts to Dismiss SEC Lawsuit

This legal act marks the latest effort to dismiss a lawsuit brought against the crypto exchanges and their founder by the federal regulator in June. The SEC accused Binance and Binance.US of allowing the public to purchase and trade unregistered securities by listing specific cryptocurrencies and offering a staking service.

Arguments Against SEC Overreach

In September, Binance, which had recently settled different charges with various U.S. organizations, including the Department of Justice and the Commodity Futures Trading Commission, filed to dismiss the SEC lawsuit. They claimed the regulator was exceeding its authority, a similar argument they made in an effort to dismiss a CFTC suit in July.

Reply to SEC's Motion to Dismiss

In reply to the SEC's response to the motion to dismiss, both Binance and Binance.US refuted the regulator's claims. They argued that the SEC failed to prove any obligations existed to the exchange's users after purchasing specific cryptocurrencies, suggesting there was no investment contract as required by the Howey Test.

Response to Inclusion of Plea Agreements

Binance also objected to the SEC's inclusion of the exchange's guilty plea with the DOJ and consent order with FinCEN, as well as Zhao's own DOJ plea, in the ongoing case. They claimed that these settlements and consent order did not implicate securities laws. They further stated that Jurisdictional admissions under the Bank Secrecy Act do not bring any of the SEC's claims within the reach of the securities laws.

Settlements Do Not Imply Violation of Securities Laws

The filing went on to argue that the facts in the plea agreements with the Department of Justice, indicating that Binance and Zhao violated the Bank Secrecy Act, did not demonstrate whether there was any fair notice of the SEC's theory that the crypto assets were securities under the Securities Act or the Exchange Act.

Edited by Jonathan Stoker