SEC Says BNB and 10 Tokens Meet Securities Criteria Under Howey Test

Details From the Filing

The SEC’s lawsuit relies on the Howey Test, a legal standard used to determine if an asset qualifies as a security. The test evaluates three criteria:

• An investment of money
• A common enterprise
• An expectation of profits derived from the efforts of others

The SEC claims that the case against Binance meets all three criteria. Specifically, the regulator argues that the exchange led users to believe the value of their tokens was tied to the success of Binance’s ecosystem, creating an expectation of profits.

In its filing, the SEC also challenges Binance’s argument that secondary market trades are outside the scope of securities laws. The SEC asserts that such transactions should also be subject to the Howey Test.

Originally filed earlier this year, the lawsuit faced criticism from Judge Amy Berman Jackson, who questioned some of the SEC’s arguments. As a result, the SEC amended its complaint, and Binance, along with Zhao, filed a motion to dismiss the amended complaint on November 4, claiming the SEC lacked sufficient evidence.

In its most recent court filing, the SEC has expanded its focus to include BNB and ten other cryptocurrencies, labeling them as securities. These include:

• Solana (SOL)
• Cardano (ADA)
• Polygon (MATIC)
• Filecoin (FIL)
• Cosmos (ATOM)
• The Sandbox (SAND)
• Decentraland (MANA)
• Algorand (ALGO)
• Axie Infinity (AXS)
• COTI

The SEC has also responded to criticism from the crypto industry, rejecting claims that it is overstepping its authority. In its filing, the agency stated: “The foretold vast and purported suffocating assertion of regulatory dominion over an entire industry has not occurred, but they complain about that, too.”

Industry Experts Weigh In

Despite the SEC’s firm stance, not all industry players agree with its approach. Some legal experts have criticized the SEC for what they perceive as inconsistent enforcement of regulations:

• Paul Grewal, Coinbase’s Legal Chief: He criticized the SEC for failing to classify Ethereum (ETH) and Bitcoin (BTC) as securities, questioning the agency’s consistency in its regulatory approach.
• Stuart Alderoty, Ripple’s Legal Officer: Alderoty criticized SEC Chair Gary Gensler, accusing him of rushing to file the 81-page brief before his term ends on January 20, 2025. Alderoty described this as recycling “failed arguments.”
• John Deaton, Crypto Attorney: Deaton urged the SEC to revisit the original Howey decision, emphasizing that the ruling clarifies that the intrinsic value of an asset or whether the enterprise is speculative doesn’t determine if an asset is a security.

These expert opinions highlight the ongoing debate within the cryptocurrency industry regarding the SEC’s regulatory authority and its approach to classifying digital assets as securities.

Conclusion

The SEC’s lawsuit against Binance, Binance.US, and Changpeng Zhao is a landmark case in the regulation of cryptocurrency exchanges. The regulator’s application of the Howey Test to BNB and other cryptocurrencies has raised important questions about the future of digital asset regulation in the U.S. As the case unfolds, industry experts and legal professionals continue to voice their concerns about the SEC’s methods and the potential impact on the broader crypto market.

With growing institutional interest in cryptocurrencies, the outcome of this case could set a precedent for future regulatory actions. As the SEC continues its legal battle, the crypto industry remains divided, and all eyes are on the court’s decision, which could shape the regulatory landscape for years to come.