SEC adds to "blind resale" allegations, Binance and CZ request dismissal of lawsuit

After regaining his freedom, Binance founder Zhao Changpeng CZ continues to battle with the U.S. Securities and Exchange Commission (SEC). The SEC has sued Binance and founder Zhao Changpeng CZ for various reasons, and continues to argue that certain cryptocurrency transactions should be considered securities transactions. Binance's legal team also filed a motion on November 4th, requesting the court to dismiss the SEC's lawsuit. Source

SEC Claims All Crypto Trades Are Securities

The initial lawsuit filed by the SEC against Binance alleged that all cryptocurrency asset trades, whether initial coin offerings (ICOs) or secondary market resales, should fall under the category of "securities." The SEC stated that since some buyers expect the tokens to appreciate, transactions involving such tokens are considered investment contracts and should therefore be regulated under securities laws.

The court's preliminary ruling on June 28, 2024, supported Binance's defense, stating that the SEC's initial claims were not valid. The court emphasized that cryptocurrency assets themselves do not constitute securities unless they involve an "investment contract," and each transaction should be independently assessed for compliance with securities laws.

Therefore, the court concluded that even secondary market token resales, especially those occurring years after an ICO, do not necessarily qualify as securities transactions. This judgment provided some legal support for Binance and other cryptocurrency businesses.

SEC Updates Lawsuit: Accuses Binance of Enabling "Blind Resales"

In September 2024, the SEC amended its lawsuit against Binance, expanding the scope of the allegations to include more tokens such as Axie Infinity Shards (AXS), Filecoin (FIL), Cosmos' ATOM, The Sandbox's SAND, and Decentraland's MANA. The SEC asserts that even trades on the secondary market involving these tokens should be treated as securities, requiring trading platforms to be regulated under securities laws.

Additional reasons for the updated lawsuit include:

• Blind Resales: The SEC specifically mentioned "blind resales," accusing Binance of conducting opaque token sales that prevent buyers from knowing the identities of the parties involved, potentially violating regulations.
• Employee Compensation: The SEC highlighted that Binance paid employee salaries and allowances using BNB tokens, which constituted the provision of unregistered investment contracts.
• Regarding the Simple Earn Program: The SEC continued to accuse the Simple Earn program of engaging in securities-related transactions, involving users depositing funds to earn interest, activities that were not registered as securities.

Blind transactions refer to trades where one or both parties are unable to access complete information about the assets or detailed information about the counterparty. In the cryptocurrency realm, this concept is related to blind signing, where signatures are approved for smart contract transactions without full comprehension of the content.

Binance Files Motion to Dismiss SEC Lawsuit

In response, Binance's legal team submitted a motion to dismiss the SEC lawsuit on November 4, arguing that the SEC only superficially complied with the court's preliminary ruling without acknowledging the subsequent outcome and core logic expressed by the court that "secondary market resales years after an IPO do not constitute securities transactions."

Binance emphasized that the SEC's amended lawsuit, treating all cryptocurrency asset trades as securities transactions, is entirely inconsistent with legal norms. They requested the court to dismiss the lawsuit entirely and prohibit the SEC from making further amendments to the complaint.

Details of SEC's securities standards, where issuing teams discuss technology, token supply ownership, and designing deflation mechanisms, are also discussed.