Binance and CZ’s Lawyers Move to Dismiss SEC Lawsuit

Binance and CZ Lawyers File Motion to Dismiss SEC’s Amended Complaint

Lawyers representing Binance and former CEO Changpeng “CZ” Zhao have filed a motion to dismiss an amended complaint filed by the Securities and Exchange Commission (SEC) in the ongoing legal battle. The motion, filed on November 4, challenges the SEC’s assertions regarding the classification of crypto assets as securities, arguing that the agency continues to ignore the court’s prior rulings on the matter.

Key Arguments Against SEC’s Amended Complaint

In the filing, Binance’s legal team argues that the SEC’s amended complaint merely pays “lip service” to the court’s earlier ruling, which did not recognize digital assets as securities. The lawyers assert that the SEC has failed to acknowledge the impact of this ruling on the trade of cryptocurrencies. Specifically, they contend that:

• Under the court’s ruling, crypto assets do not qualify as securities.
• Secondary market resales of digital assets should not be considered “securities” transactions.
• The SEC continues to argue that virtually all transactions involving crypto assets are securities transactions, simply because buyers may hope the assets will increase in value.

The legal team points out that the SEC has failed to establish a clear distinction between “assets” and “investment contracts.” They argue that assets cannot be categorized as investment contracts merely because they were offered as part of a “package of promises and expectations.” Without such clarity, they believe the SEC’s position is untenable.

Lack of Clear Standards and Arbitrary Decisions

Furthermore, the filing claims that the SEC has not provided clear standards for courts, litigants, or market participants to determine which digital asset transactions should be classified as investment contracts. The legal team criticizes the SEC for arbitrarily selecting “winners and losers” in the crypto space. They reference a previous case involving Ether transactions, which was abandoned by the SEC after the agency failed to categorize Ether as a security.

The lawyers also note the SEC’s own admission that its current “non-test” for identifying securities cannot differentiate between assets like cryptocurrencies and collectibles, such as Beanie Babies, at the pleading stage. This further highlights the lack of a clear legal framework for determining the status of digital assets under U.S. securities laws.

Binance’s Legal Challenges and SEC’s Shift in Terminology

The motion to dismiss also critiques the SEC’s shifting stance on cryptocurrencies. In September 2023, the SEC filed an amended complaint against Binance and CZ, clarifying that it did not intend to label cryptocurrencies and tokens as securities. Instead, the agency explained that it uses the term “securities” as a shorthand to refer to various aspects of crypto sales.

• The SEC introduced the term “crypto asset securities” and apologized for any confusion caused.
• The agency vowed to continue pursuing the case under this new framework.

This ongoing legal drama stems from the SEC’s June 5, 2023, lawsuit against Binance, CZ, and several affiliated companies for allegedly violating securities trading regulations. The SEC claims that Binance’s operations involved the unlawful sale of crypto assets such as the BNB token and the BUSD stablecoin, both of which the agency has recognized as securities.

Impact on the Crypto Industry

Binance is not the only cryptocurrency-related entity facing legal challenges with the SEC over the classification of digital assets. The agency has also filed lawsuits against other major players in the crypto space, including Coinbase and Ripple. These legal battles all center around the allegations that these businesses offered unregistered crypto asset securities, which has prompted widespread debate over how digital assets should be regulated in the U.S.

Conclusion: What’s Next for Binance and the SEC?

As the legal proceedings continue, the outcome of this case could have far-reaching implications for the future of cryptocurrency regulation in the U.S. Binance and CZ’s motion to dismiss highlights the ongoing tension between the crypto industry and traditional financial regulators. With no clear resolution in sight, market participants and legal experts will be closely watching how the courts handle these complex issues of asset classification and regulatory authority.