CZ and Binance Push Back Against SEC’s Crypto Crackdown

TLDR

• Binance and CZ’s lawyers filed a motion to dismiss SEC’s amended complaint on Nov 4, 2024
• The motion argues that secondary market crypto resales shouldn’t be classified as securities
• Lawyers criticize SEC’s lack of clear regulatory standards for crypto assets
• Motion points out SEC’s inconsistent stance, particularly regarding Ethereum
• Case is separate from DOJ charges that resulted in $4.3B fine and CZ’s prison term

Binance and its former CEO Changpeng “CZ” Zhao are mounting a fresh legal challenge against the Securities and Exchange Commission (SEC).

On November 4, 2024, their lawyers filed a motion to dismiss the SEC’s amended complaint, marking another chapter in the ongoing regulatory battle.

The motion takes aim at the SEC’s interpretation of securities laws as they apply to cryptocurrency transactions.

According to the filing, while the SEC acknowledges that crypto assets themselves are not securities, the regulator continues to treat secondary market resales as securities transactions.

Binance’s legal team argues that the SEC’s amended complaint merely pays “lip service” to an earlier court ruling about the nature of crypto assets.

The motion states that the regulator refuses to accept that secondary market resales of crypto assets, occurring long after their initial distribution, should not be classified as securities transactions.

The lawyers point to what they see as a contradiction in the SEC’s approach. They note that the regulator maintains that almost all crypto asset transactions qualify as securities transactions simply because some buyers might hope for value appreciation.

This broad interpretation, according to the defense, goes beyond the intended scope of securities regulations.

A key criticism in the motion centers on the SEC’s regulatory clarity—or lack thereof. The filing states that the SEC has failed to provide clear standards for courts, those involved in litigation, and market participants to determine which crypto asset transactions qualify as investment contracts.

The defense team highlights what they view as inconsistent enforcement by the SEC. They specifically point to the regulator’s recent decision to abandon its claim that transactions involving Ethereum constitute investment contracts.

This reversal regarding the second-largest cryptocurrency by market value occurred without explanation, according to the motion.

This legal challenge is part of a larger case that began in June 2023, when the SEC filed suit against Zhao and three companies: BAM Management U.S. Holdings, BAM Trading Services, and Binance Holdings.

The lawyers emphasize that this SEC action is separate from the criminal charges brought by the Department of Justice.

The DOJ case concluded in November 2023 with Binance admitting to anti-money laundering violations, operating as an unlicensed money transmitter, and sanctions violations.

These admissions resulted in a $4.3 billion fine for the company, while Zhao served a four-month prison sentence in the United States.

The timing of this motion coincides with broader regulatory actions in the cryptocurrency space. The SEC has been actively pursuing cases against various cryptocurrency companies, with a recent Wells notice issued to gaming company Immutable.

The motion’s arguments reflect ongoing debates about the application of traditional securities laws to digital assets. Binance’s lawyers assert that the SEC’s current approach creates uncertainty in the market and fails to provide clear guidance for industry participants.

The legal filing challenges the SEC’s authority to regulate secondary market transactions of cryptocurrencies. This question strikes at the heart of ongoing discussions about the scope of securities regulations in the digital asset space.

In addressing the SEC’s amended complaint, the motion questions the regulator’s methodology for determining which crypto transactions qualify as investment contracts.

The defense argues that this lack of clear standards creates confusion for market participants and the courts.

The document points to the evolution of the SEC’s stance on various cryptocurrencies, particularly highlighting the change in position regarding Ethereum transactions. This shift, according to the motion, demonstrates inconsistency in the regulator’s approach.

The filing represents the latest development in the complex legal landscape surrounding cryptocurrency regulation. It follows Zhao’s recent release from prison after serving his sentence related to the separate DOJ case.

The motion was submitted on November 4, 2024, and awaits the court’s consideration. The outcome could influence how securities laws are applied to cryptocurrency transactions in the future.