Cryptocurrency exchange Binance had its first hearing with the Securities and Exchange Commission (SEC) in the Federal District Court for the District of Columbia in the United States on the 22nd. Binance sought to have the lawsuit dismissed, and both parties argued about whether cryptocurrencies fall within the SEC’s regulatory jurisdiction as securities. However, the judge did not make a final ruling.
Background:
The SEC plans to win the lawsuit against Binance and Coinbase using the “LUNA case” and claims that BUSD and UST are both securities.
In November of last year, Binance reached a settlement agreement with the US Department of Justice, the Commodity Futures Trading Commission (CFTC), the Office of Foreign Assets Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN). They pleaded guilty and agreed to pay a $4.3 billion fine, but the lawsuit with the US Securities and Exchange Commission (SEC) is still ongoing.
In June of last year, the SEC filed a lawsuit against Binance Holdings (the parent company of Binance), Changpeng Zhao, and Binance US, accusing them of 13 charges, including operating an unregistered exchange, illegally providing and selling securities to US investors, and mishandling customer funds, among others.
Dispute over regulatory jurisdiction:
According to Blockworks’ report, Binance and the SEC had a four-hour hearing on the 22nd at the Federal District Court for the District of Columbia. Binance attempted to dismiss the SEC’s accusations, but Judge Amy Berman Jackson questioned Binance’s position. She asked Binance’s lawyer how they believe the SEC does not have the authority to apply securities laws to cryptocurrencies.
Binance’s lawyer responded that they indeed agree with the SEC’s argument that securities laws have a broad definition. However, aside from the broad definition, securities laws also have other intentions. He emphasized that securities laws must have limiting factors, otherwise real estate could be considered a security.
During the hearing, Amy Berman Jackson seemed increasingly disappointed with the Binance team and even asked Binance to stop repeating their argument that investment contracts can only apply to signed actual contracts. She stated that it would waste a lot of time to go through each alleged asset and determine if they meet the Howey Test criteria. She also doubted if Binance had correctly explained the definition of an investment contract under the Howey Test.
Binance hopes to invoke the “significant questions doctrine”:
Last week, another exchange, Coinbase, also had a hearing to seek the dismissal of the SEC lawsuit in the Southern District Court of New York. Like Binance, Coinbase also invoked the “significant questions doctrine,” which states that an institution must obtain clear instructions from Congress before issuing rules with significant economic or political impact.
Binance argues in its motion to dismiss that the SEC’s arguments are broad and would have a huge impact on the cryptocurrency market. Amy Berman Jackson, however, admitted that this case has an impact on the entire cryptocurrency industry but is not inclined to believe that the significant questions doctrine applies in this case. Her position is similar to the judge in the SEC v. Coinbase case, and she has not yet decided whether to agree to dismiss this case.
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