A class-action lawsuit against Binance, the world’s largest cryptocurrency exchange, has been revived by the U.S. Court of Appeals for the Second Circuit. This lawsuit, initially dismissed in 2022, accuses Binance of violating U.S. securities laws by selling unregistered tokens to investors. The plaintiffs, led by investor Chase Williams, argue that Binance’s sale of various crypto tokens, including EOS, TRON, and ICON, among others, were essentially unregistered securities. The investors claim they were unaware of the significant risks associated with these investments, resulting in substantial financial losses.
In March 2022, District Judge Andrew Carter dismissed the lawsuit, stating that U.S. securities laws did not apply to Binance, as it is not a domestic exchange, and that the claims were filed outside the statute of limitations. However, the appellate court overturned this decision, ruling that the tokens’ purchases, which were irreversible in the U.S. after payment, subjected Binance to domestic securities laws. The court also highlighted Binance’s use of Amazon’s domestic servers to host its platform, reinforcing the applicability of U.S. regulations.
This legal development comes amid a series of regulatory challenges faced by Binance. In June 2023, the U.S. Securities and Exchange Commission (SEC) filed a separate lawsuit against Binance, alleging unregistered securities sales and improper handling of customer assets. Additionally, Binance settled with the U.S. Department of Justice in November 2023, paying $4.3 billion for violations of money laundering and terrorism financing laws. Binance founder Changpeng Zhao also pleaded guilty to money laundering charges and is awaiting sentencing.
Despite these setbacks, Binance continues to defend itself, arguing that the tokens in question are utility tokens, not securities, and thus do not require registration. This legal battle sets a significant precedent, potentially impacting other cryptocurrency exchanges and how they operate within the U.S.
This ongoing saga highlights the increasing scrutiny on cryptocurrency exchanges by U.S. regulators, emphasizing the need for clear regulatory frameworks to govern digital assets. As Binance navigates these legal hurdles, the outcomes of these cases will likely shape the future of crypto regulation and investor protection in the rapidly evolving digital asset market.
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