Binance challenges SEC lawsuit crypto classification in court motion

Binance and its founder, Changpeng Zhao, have filed a motion to dismiss the US Securities and Exchange Commissions (SEC) amended complaint.

In a Nov. 4 court filing, Binance and Zhaos legal team argued that the SEC has only superficially acknowledged a prior court ruling, which clarified that crypto is not inherently classified as a security.

According to them, the SECs expanded lawsuit contradicts an existing court ruling that distinguished crypto from securities. The exchange highlighted that the SECs position disregards the logical implications of that ruling, which suggests that secondary market resales of digital assets do not constitute securities transactions after their developers initially distributed the assets.

The defendants further argued that the amended complaint lacks a clear legal foundation to distinguish between assets involved in investment contracts and the investment contracts themselves.

The filing stated:

Assetswhether oranges, Beanie Babies, or crypto assetsdo not become investment contracts in perpetuity simply because they were initially offered and sold to customers as part of a package of promises and expectations that collectively qualify as investment contracts under the Howey test.

Binance further explained that token sales over exchanges are generally impersonal. When one party places an order to buy and another places an order to sell, the transaction is completed by matching software without direct interaction. In these cases, buyers lack any reasonable expectation that their funds are invested into a joint enterprise aimed at generating profits. Without this expectation, the transaction fails to meet the requirements of an investment contract under securities law.

So, Binance is seeking the dismissal of the amended complaint and wants specific portions of the SECs requested relief removed from consideration.

Blind sales

Additionally, Binance and Zhao contested the SECs classification of alleged blind sales of BNB by Binance Holdings Limited (BHL) as investment contracts. They argued that these sales resemble resales, where buyers had minimal information about the seller, making them unlikely to qualify as investment contracts.

Meanwhile, Binances motion to dismiss also includes a request to reject the financial regulators request for disgorgement and efforts to bar Zhao from participating in the securities market. The filing stated:

After an extensive pre-suit investigation and 16 months of expedited discover into BAMs custody of customer wallets and assets, ECF 71 at 9, the Amended Complaint still conspicuously lacks any allegations that the challenged conduct by BHL or Mr. Zhao harmed customers, as is required for the SEC to seek disgorgement.

Earlier in the year, the SEC expanded its original lawsuit against Binance to encompass additional digital assets. In the amendment, the SEC also maintained that nearly all crypto transactions, including secondary market trades, qualify as securities transactions.

This development occurs amid ongoing debate about the SECs inconsistent approach to defining the security status of digital assets. Over time, the SEC has faced criticism for its conflicting stances and perceived contradictions with court rulings.

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Text source: CryptoSlate

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