The U.S. Securities and Exchange Commission (SEC) has filed a proposed amended complaint against Binance. This follows a recent ruling where most of the SEC's initial lawsuit was allowed to continue. The SEC aims to address concerns raised by the judge about ongoing BNB sales and the Binance Simple Earn product. They are also reinforcing allegations about 10 digital assets that the SEC claims were sold as unregistered securities.
In their filing, the SEC noted that some claims were dismissed due to a lack of sufficient factual evidence to meet the Howey test. This test helps determine whether certain transactions qualify as investment contracts. The SEC first sued Binance in June 2023, alleging that the exchange operated as an unregistered broker and offered unregistered securities through BNB and the BUSD stablecoin, among other services.
After the lawsuit, Binance and its executives sought to dismiss the case. In June 2024, Judge Amy Berman Jackson ruled on some charges, dismissing those related to Binance's Simple Earn product and secondary BNB sales. However, most of the SEC's claims were allowed to proceed.
During a July 2024 hearing, discussions arose about whether the judge's ruling meant that the 10 cryptocurrencies in question remained part of the case. The amended complaint aims to strengthen the allegations regarding BNB and these cryptocurrencies, countering the defendants' arguments for dismissal.
The SEC believes that allowing the amended complaint won't significantly harm Binance or its affiliates. They have been aware of the allegations since June and will still have a chance to respond. The SEC submitted this amended complaint by a court-imposed deadline, and Binance has until October 11 to contest it.
A detailed version of the proposed amended complaint reveals significant elaborations on the SEC's claims about Binance's token listings, including BNB. The filing clarifies that some cryptocurrencies are native to specific blockchains, while others may be built on top of existing ones. Additionally, it states that proof-of-stake networks reward validators similarly to proof-of-work networks.
Moreover, the proposed filing introduces "initial exchange offerings" into the discussion of initial coin offerings. A notable addition claims that Binance plays a crucial role in the crypto asset markets, including those involving securities, by amplifying promotional statements from issuers and promoters.
The complaint further details Binance's role in promoting the digital assets it lists and trades. It asserts that BNB is marketed as a security, with customers, employees, and investors sharing this expectation. The SEC alleges that Binance has promoted BNB as an "exchange token," presenting it to investors as a stake in the success of the Binance.com platform.
Additionally, the SEC claims that Binance's token burns and support for projects using BNB are designed to enhance the token's value. Furthermore, they allege that Binance compensated U.S. employees, including BAM Trading executives, in BNB. The SEC also states that in internal discussions, CEO Zhao compared Binance’s employee token option plan to traditional stock options, suggesting a direct link to profit-sharing from the platform's growth.
The filing goes into detail around Binance Simple Earn and the 10 digital assets—SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI—that the SEC alleges were sold as unregistered securities on the Binance platform. The SEC asserts that Binance and BAM Trading actively promote these assets as appealing investments, bolstering the promotional efforts of the issuers.
According to the SEC, Binance and the token issuers provide selective information to encourage customer investments. They use Binance's Solana page as an example. When Binance and BAM Trading approve a crypto asset listing, they typically negotiate agreements with issuers that impose requirements to encourage trading on their platforms.
Binance's website, including its explanation of "tokenomics," also references the market value of tokens and draws parallels between trading crypto assets and traditional securities markets. In its proposed amended complaint, the SEC has removed the term "crypto asset securities," clarifying that it does not equate the crypto asset itself with security status.
The SEC expressed regret for any confusion caused by its previous terminology. They emphasized that the crypto asset is the subject of the investment contract. The SEC clarified that it does not argue that the 10 crypto assets cease to be securities over time. They maintain that their promotional contexts and economic realities remain unchanged under the Howey test, thus continuing to be offered and sold as investment contracts.
In the amended complaint, the SEC has replaced references to "crypto asset securities" with "crypto assets that were offered and sold as securities." This change aims to clarify the nature of the allegations and the status of the assets involved.