A Second Look at Third-Party Token Allegations in the SEC's Case Against Binance

A federal judge is reviewing what role third-party tokens may play in the SEC's ongoing case against Binance.
Last week, a federal judge convened a hearing for the U.S. Securities and Exchange Commission's case against Binance after publishing her ruling on Binance's motion to dismiss the SEC lawsuit.
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Last week, a federal judge said she would review her ruling in the U.S. Securities and Exchange Commission's (SEC) case against Binance and affiliated entities (namely Binance.US and founder Changpeng Zhao) after attorneys for the world's largest crypto exchange said they interpreted the ruling in a specific way beneficial to them.
During a hearing on July 9, attorneys for Binance said they interpreted Judge Amy Berman Jackson's June 28 ruling on Binance's motion to dismiss the SEC's case as moving third-party tokens – digital assets alleged to be unregistered securities by the SEC that were issued by various companies not named Binance – out of the case. The judge said that was not her intention, which kicked off a nearly hour-long back-and-forth over whether she had sufficiently addressed both Binance and the SEC's written arguments over these specific tokens.
The SEC's June 2023 lawsuit against Binance alleges the exchange offered and sold BNB, Binance's token, as an unregistered security; that it sold its BUSD stablecoin as an unregistered security; that it failed to register as a broker, clearing agency or exchange; that its staking service violated federal securities laws; and that it commingled customer funds. As part of its allegations, the SEC named 10 different cryptocurrencies including solana (the rest are listed below) it alleged were unregistered securities.
It's the status of the specific claims about the 10 tokens that were discussed during last week's hearing – and it's difficult to say how exactly this may resolve or what the implications are for the case. On the one hand, if the judge decides that the third-party tokens should be removed from the specific charges against Binance, that's one less thing for the exchange to have to defend itself against and it may limit or otherwise shape the scope of discovery. On the other hand, the judge seemed to indicate she did not believe her order moved the tokens out of the case, which goes the other way in terms of how much discovery the SEC may be entitled to.
In her June 28 ruling, Judge Jackson said the SEC had brought plausible charges against Binance, Binance.US and Zhao tied to staking, the initial coin offering and ongoing direct sales of Binance's BNB token, the BNB vault (a staking and rewards program) and failing to register, as well as fraud. Charges against Binance's Simple Earn savings accounts, its BUSD stablecoin and secondary sales of BNB from parties other than Binance were dismissed.
The SEC alleged that Binance in particular listed 10 tokens that it viewed as securities, as examples of how the exchange was violating federal securities laws by being a broker, dealer and clearinghouse: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI. In its motion to dismiss, Binance argued that the SEC couldn't plausibly allege that they were securities, saying they didn't meet the tenets of the Howey Test.
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https://www.coindesk.com/opinion/2024/07/19/a-second-look-at-third-party-token-allegations-in-the-secs-case-against-binance/
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