WASHINGTON — In a pivotal legal ruling, the District Court for the District of I Columbia has decided that the Securities and Exchange Commission (SEC) can proceed with multiple charges against the global cryptocurrency platform Binance and its CEO, Changpeng Zhao. The court, under Judge Amy Berman Jackson, upheld the SEC’s allegations concerning unregistered securities offerings and other regulatory breaches, though it dismissed some charges related to secondary market activities.
The SEC’s lawsuit claims that Binance, along with its U.S. counterpart Binance.US, has been operating without the proper registration, offering services equivalent to those of brokers, traders, and clearing agencies. This crackdown is part of a broader regulatory sweep that has also seen actions taken against other major players in the cryptocurrency sector, including Coinbase, Kraken, and more recently, Consensys and MetaMask.
In her detailed ruling, Judge Jackson found credible the SEC’s allegations that Binance failed to register initial and continued offerings of their digital tokens, specifically citing the Binance Coin (BNB), BNB Vault, and staking services as areas of concern. However, her decision also relieved Binance from charges concerning secondary market sales of BNB and its Simple Earn product. The dismissal was influenced by a precedent set by Judge Analisa Torres in a similar case involving Ripple Labs in 2023, which emphasized the economic realities of token transactions.
One key passage in Judge Jackson’s ruling highlighted insights from various district courts on handling SEC’s enforcement actions related to cryptocurrencies. She pointed out the critical distinction traditionally made between the tokens themselves and the underlying investment contracts they represent, in accordance with long-standing Supreme Court definitions of securities.
Currently, Zhao faces a separate legal battle, serving a four-month sentence related to a sanctions violation as ruled by the Department of Justice and the Treasury Department. His involvement with the ongoing SEC litigation adds a significant layer to his legal troubles.
Judge Jackson notably rebuffed arguments that questioned the SEC’s authority to regulate the cryptocurrency industry under the major questions doctrine. This legal principle maintains that only Congress can grant federal agencies the power to regulate significant sectors. Jackson concluded that the crypto industry does not yet meet the criteria of having such a broad impact as to warrant the application of this doctrine.
As the legal confrontations unfold, regulators continue to underscore their stance that cryptocurrency platforms must comply with existing securities laws, aiming to maintain market integrity and protect investors. The judge has scheduled further hearings for July 9, which are expected to provide more clarity on whether the SEC’s enforcement actions will adjust the operations of cryptocurrency exchanges operating within or targeting consumers in the United States.
This pivotal case not only underscores the evolving nature of financial regulations with the rise of digital currencies but also sets a potentially precedent-setting stage for how U.S. law applies to emerging technological domains.