Legal Tussle Involving Binance and SEC Casts Doubt on BNB and BUSD Token Designations

Cryptocurrency exchange Binance appeared before the United States Securities and Exchange Commission (SEC) in the District of Columbia's federal court on Monday, aiming to have the regulator's lawsuit dismissed. SEC During the court proceedings, Judge Amy Berman Jackson engaged both parties in dialogue about whether certain cryptocurrencies are classified as securities and their compliance with SEC regulations.

The Judge asked for clarifications regarding Binance’s BNB and other tokens in relation to the Howey test's criteria. This test is a legal benchmark used by the SEC to determine if an asset falls under the security category.

regarding the legal representation of Binance with respect to the Howey Test.  Binance US dollar stablecoin (BUSD) \"The Howey Test outlines that an investment contract can be understood as a contract, transaction, or scheme. It doesn’t exclusively refer to a contractual agreement,\" Judge Amy Berman Jackson noted during the proceedings.

The judge expressed concern during Monday’s hearing Binance's legal team argued that for an asset to be deemed a security there needs to be a concrete contract involved, but the judge countered this view by referencing legal precedents that underline the broader interpretation of the law.

The judge expressed skepticism that the BUSD stablecoin was marketed as an investment product while questioning the implication of Binance's initial presentation of the BNB token as an investment contract. She was uncertain about whether this classification holds during subsequent trades in the secondary market.

An SEC attorney insisted that the token essentially embodies the investment contract, a statement that seems to contradict earlier claims where the token was described merely as digital code.

During the hearing, Judge Jackson probed SEC attorneys about the agency's criticism for being vague in how its regulations apply to the cryptocurrency sector. The SEC representative refuted the idea that the agency had been inconsistent, citing guidance documents published over the years.

The SEC attorney stressed, \"The Howey framework is explicit, and you shouldn't need a regulator to specifically remind you of potential violations of securities laws.\"

From the SEC’s standpoint, Binance’s incessant marketing of its services together with BUSD tokens created a reasonable expectation for investors to profit. Conversely, Binance's lawyers argued that self-promotion is standard practice in any industry and should not be the deciding factor.

Consideration of Secondary Token Sales and BUSD Classification

An ongoing theme in the hearing revolved around whether secondary market token transactions should receive the same treatment as primary token sales executed by the originating projects. Binance’s defense asserted that trades on their platform do not pool funds that contribute to a shared investment, which is a key trait identified in the Howey test. BNB The SEC countered that if a token possesses traits of a security, those traits persist in any transaction involving it. SEC attorneys contended that the establishment of secondary market activity increases a token's valuation—something buyers are fully aware of and expect.

They also argued that the BUSD stablecoin should be classified as a security since it was marketed alongside features allowing users to earn returns on their assets on the Binance platform, including BUSD.

Binance References Major Questions Doctrine

During the session, Binance invoked the major questions doctrine, stating that if an agency seeks to make decisions impacting significant national matters, it requires clear support from Congress. Binance maintained that this doctrine was relevant to their case. 

According to Binance's lawyer, if the court adopts the SEC's viewpoint, it could set a precedent enabling the SEC to extend its regulatory reach to any asset experiencing appreciation. However, the judge exhibited doubts regarding this implication.

"While this could be a trillion-dollar industry, I don't think it fits the narrowly defined circumstances mentioned in these legal cases,\" Judge Amy Berman Jackson remarked during the session.

Moreover, there was an extensive discussion focused on distinguishing the boundaries of regulatory powers between the SEC and the US Commodity Futures Trading Commission (CFTC), although no definitive conclusions surfaced.

Binance and Coinbase Navigate SEC Allegations

In June, Binance Holdings and its former CEO, Changpeng Zhao, faced allegations including misleading practices toward customers, not enforcing restrictions on U.S. investors utilizing Binance.com, improper capital allocation to investment funds associated with

and operating as an unregistered exchange. The SEC labeled 12 tokens on Binance, including BNB and BUSD, as securities.

Monday's court hearing was the second instance this month involving the SEC and cryptocurrency exchanges. 

The SEC sued Recently, Coinbase, the cryptocurrency trading platform, also appeared in court with the SEC regarding similar claims. However, Coinbase is primarily accused of functioning as an unregistered securities exchange without the fraud-related allegations that burden Binance. Changpeng Zhao Last year, the SEC raised legal actions against Coinbase, alleging it was operating as an unregistered platform, broker, and clearing agency. The SEC's claims included at least 13 tokens that should have been registered as securities.

During the court hearing on Wednesday, Manhattan Federal Judge Katherine Polk Failla sought clarity from Coinbase about the categorization of the tokens listed on its exchange. She wanted to determine whether these tokens qualified as securities. After the hearing, the judge chose not to render an immediate ruling.

In a manner similar to Binance’s scenario, the SEC referenced a December summary judgment in its case against In that instance, a judge ruled in favor of the SEC, declaring that the UST (Terra) stablecoin was sold as an investment contract. The principal argument cited was its yield-earning capabilities through the Anchor protocol, which tilted the case partially in favor of the SEC. Additionally, under the scrutiny of the SEC enforcement division, both crypto exchanges have called upon the major questions doctrine while advocating for Congressional involvement.

The legal dispute between Binance and the SEC remains active, with Binance continuing its efforts to have the case dismissed. 

Securities and Exchange Commission

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