The judge said that domestic law doesn’t apply to Binance because it isn’t an exchange that is domestic to the United States. He also said that the case was filed “too late.”
U.S. securities laws say that if a company doesn’t register as a broker-dealer or exchange and sells crypto tokens that haven’t been approved by the U.S. Securities and Exchange Commission, it can’t sell them to people in a class action lawsuit (SEC).
There was a group of investors who filed a complaint in the U.S. District Court for New York’s Southern District of New York. They say they bought tokens EOS, BNT, SNT, QSP, KNC, TRX, FUN, ICX, ICX, OMG, LEND, and CVC between 2017 and 2018. An amended complaint was filed. It only had nine tokens on it, with BNT, SMT, and CVC removed.
Investors said the tokens had lost a lot of their value since they bought them, and they wanted to get back some of the money they paid for the tokens and the fees they paid to Binance.
“Binance and the Issuers wrongfully engaged in millions of transactions, including the solicitation, offer, and sale of securities, without registering the Tokens as securities, and without Binance registering with the SEC as an exchange or broker-dealer. As a result, investors were not informed of the significant risks inherent in these investments, as federal and state securities laws require.”
People who bought cryptocurrency tokens also said Binance profited from people’s excitement about cryptocurrencies by marketing tokens and initial coin offerings (ICOs) on behalf of projects and making money from the fees that come from trading them. They said they bought the tokens with a “reasonable expectation of profit.”
In his decision on Thursday, March 31, Judge Andrew L. Carter said that because the investors filed their complaint more than a year after they bought the tokens, they had been too late to do so. This is how it works: Most of the tokens were bought in 2018. The original filing wasn’t made until April 2020.
Investors said that because the SEC released a framework saying that digital tokens were securities in April 2020, the time to file a complaint should have started then. Carter found that the relevant laws apply when the supposed violation happens, not when it is discovered.
It’s also not subject to U.S. securities laws because it’s based in the Cayman Islands, which are not part of the United States. Binance does use Amazon Web Services to host its infrastructure, which is based in the United States. However, that isn’t enough to make Binance a domestic exchange.
“Plaintiffs must say more than that they bought tokens while in the United States and that the title passed in whole or in part over servers in California that host Binance’s website,” Carter wrote in the motion.
If a group of people want to sue a crypto exchange, this isn’t the only case that has been made. An unregistered securities exchange called Coinbase was sued in the same court on March 11. Similar claims are being made against Coinbase, where plaintiffs say they were not told about the risks of investing in cryptocurrency.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.