Cryptocurrency Exchange Binance Faces Legal Hurdle
In a significant blow to Binance, the world’s largest cryptocurrency exchange, the US Supreme Court has refused to hear its appeal against a lawsuit filed by investors. The investors accuse Binance of illegally selling unregistered tokens that resulted in substantial losses.
The Lawsuit: A Brief Background
The lawsuit, filed by investors who purchased ELF, EOS, FUN, ICX, OMG, QSP, and TRX tokens through Binance starting in 2017, alleges that the exchange failed to warn them about the significant risks associated with these tokens. The investors are seeking to recoup their losses in the proposed class-action lawsuit.
The Legal Battle
Binance, founded in China, had argued that it should not be governed by US securities laws since it is not a US-based company. However, the 2nd US Circuit Court of Appeals in Manhattan ruled that domestic securities laws could apply despite Binance’s foreign status. The court cited the exchange’s use of domestic servers, which made token purchases irrevocable in the US once investors paid for them.
Binance’s Appeal
Binance appealed the decision, citing a 2010 Supreme Court ruling, Morrison v National Australia Bank, which limited the extraterritorial reach of US securities laws. The exchange argued that the 2nd Circuit misapplied this decision, allowing liability at multiple stages of securities transactions and in multiple countries. Binance claimed that this approach essentially revived a standard that the Supreme Court had rejected, where domestic securities laws could apply if conduct underlying a transaction took place or had effects in the US.
Global Implications
Binance’s appeal also raised a question of global significance for financial markets: whether and when US securities laws extend to foreign trading platforms like Binance.com. The exchange’s failure to secure a hearing from the Supreme Court means that the lawsuit will proceed, potentially setting a precedent for the regulation of cryptocurrency exchanges operating outside the US.
Unrelated but Relevant
It is worth noting that this case is separate from Binance’s November 2023 guilty plea and $4.3 billion penalty for violating federal anti-money laundering and sanctions laws. Founder Changpeng Zhao was sentenced to four months in prison in a related case and was released in September.
Leave a Reply