Binance and CEO Changpeng “CZ” Zhao have submitted a joint request to the United States District Court to dismiss a lawsuit filed against them by the Securities and Exchange Commission (SEC).
The SEC made thirteen charges in June of this year against Binance, which includes operating as an unregistered exchange, broker, and clearing agency; trading unregistered crypto assets; failing to restrict U.S. investors from accessing its non-U.S. platform; and misleading its customers.
The allegations echo the ones filed against Binance’s former rival FTX and its founder, Sam Bankman-Fried. Binance also received a similar lawsuit from the Commodity Futures Trading Commission (CTFC) in March.
“As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied,” SEC chair Gary Gensler announced in June.
“They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
In response, Binance and Zhao claimed that the financial regulatory had overstepped its authority, as documented in a September 21 filing to the United States District Court. In their 60-page submission, the lawyers representing Binance and Zhao claimed that the SEC had not laid out clear regulations for the crypto sector.
It was also suggested that the SEC misinterpreted securities regulations and how they relate to crypto assets. “It is clear that the SEC’s lawsuit has no foundation in the currently enacted securities laws,” the filing reads.
“The SEC pursues these novel theories retroactively, seeking to impose liability for sales of crypto assets that occurred as far back as July 2017, before the SEC provided any public guidance concerning cryptocurrency. As the SEC lacks authority to do this, BHL and Mr. Zhao respectfully move to dismiss the Complaint.”
Along with Binance and Zhao, the U.S. branch of the crypto exchange, Binance.US, also has sought to have the charges against it dropped in a separate 56-page filing.
In the wake of the regulatory scrutiny, daily trading volumes on Binance and Binance.US plummeted more than 98 percent. This led to the layoffs of about 30 percent of Binance U.S.’ workforce, which coincided with the departure of its CEO Brian Shroder and the appointment of chief legal officer Norman Reed as his replacement. Both head of legal and chief risk officer Krishna Juvvadi and Sidney Majalya also stepped down from their roles following the lawsuit.
Binance and CZ argue that only the U.S. Congress has the authority to make policy decisions of the magnitude that the SEC is requesting the court to make. If the SEC’s suit comes through, it will prevent Binance and CZ from doing business in the U.S.
On the other hand, should Binance and Zhao’s plea be granted, the dismissal of the lawsuit would be seen as a win for the crypto sector as it will bring clarity to the regulatory landscape in the U.S.
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