SEC Places Heavier Scrutiny on Binance’s Token Listing, Trading Process in Proposed Amended Complaint

As an analyst with over two decades of experience in the financial sector, I’ve seen my fair share of legal battles between regulatory bodies and financial institutions. The latest development in the ongoing saga between the U.S. Securities and Exchange Commission (SEC) and Binance certainly piques my interest.

The U.S. Securities and Exchange Commission (SEC) has decided to refile its lawsuit against cryptocurrency exchange Binance, submitting a proposed revised complaint late on Thursday evening, several months after the presiding judge approved most of the regulator’s allegations to stand following a motion to dismiss.

In the SEC filing, it was stated that the MTD Order discarded the assertions due to a lack of substantial facts to pass the Howey test, rather than due to a flawed legal argument.

During the court hearing held in July 2024, I found myself engaged in a discussion with attorneys regarding the interpretation of the judge’s decision. The crux of the debate revolved around whether the 10 cryptocurrencies that the Securities and Exchange Commission (SEC) had accused of being sold as unregistered securities would still be included within the scope of the ongoing case.

The SEC stated that allowing the filing of an amended complaint against Binance and its related parties will not cause them undue harm, as they have had knowledge of the allegations since last June and will still have an opportunity to respond. The proposed amended complaint was filed at the court-ordered deadline, and Binance has until October 11 to contest this motion.

One line adds that in addition to some cryptocurrencies being native to a specific blockchain, others may be built on top of blockchains. Another line clarified that proof-of-stake networks still reward validators like proof-of-work networks.

The proposed filing also adds “initial exchange offerings” to its section on initial coin offerings.

As a crypto investor, I firmly believe in stating that Binance plays a significant role in the market for digital assets, encompassing those labeled as securities. In essence, Binance functions as a platform that disseminates and boosts information from issuers and promoters, thereby shaping and influencing these markets.

The filing adds other paragraphs focusing on Binance’s own role in allegedly promoting digital assets it lists and trades.

In the course of conducting business and offering intermediary services, Binance and BAM Trading endorse and boost the appeal of Ten Specific Cryptocurrencies as investment options for their clients, often echoing and reinforcing the marketing claims and actions of the cryptocurrency issuers and promoters,” the document mentioned.

According to the SEC’s claim, Binance and the token creators deliberately share certain pieces of information to motivate Binance users to buy these tokens. To support this argument, they presented images from Binance’s Solana page as evidence.

In their listings, Binance and BAM Trading often reach deals with cryptocurrency creators that include conditions for the issuers. These terms are designed to motivate trading among users of Binance’s platforms. (This filing stated)

As a crypto investor navigating through Binance’s informative pages, I’ve come across terms like “tokenomics” that clarify the market value of various tokens. In essence, these explanations equate the buying and selling of cryptocurrencies to traditional stock trading in conventional markets.

Token issuers have similarly touted their teams’ efforts, the SEC alleged.

Crypto asset securities

In a revised court filing, the Securities and Exchange Commission clarified that they will no longer use the term “crypto asset securities”. They explained in a footnote that when they mention the term “security”, they are not implying that the cryptocurrency or digital asset itself is the security.

Instead, the SEC expressed regret for any misunderstanding that might have arisen from their use of the term, stating that they used it to describe the entire collection of agreements, assumptions, and mutual understandings related to the sale and distribution of the digital assets in question.

The court stated that the focus of the case is the crypto asset. It seems that the defendants claim that if these Ten Crypto Assets were initially securities during the ICOs (Initial Coin Offerings), they are no longer considered securities indefinitely. However, the SEC does not make this claim. Instead, their accusation about the Ten Crypto Assets traded on secondary markets is that their characteristics have not significantly altered under Howey’s criteria, meaning they continue to be offered and sold as investment contracts.

Instead of referring to “crypto asset securities,” the Securities and Exchange Commission (SEC) decided to use “cryptocurrencies that were marketed and traded as securities” in several instances within the revised lawsuit.