Crypto Celebrates Court Dismissing SEC Claims That Secondary BNB Sales Are Securities

Legal experts describe the ruling as a significant victory over the SEC for the web3 sector.

The web3 community is celebrating a key court ruling delivering a blow to the U.S. Securities and Exchange Commission (SEC)’s efforts to classify cryptocurrencies as securities.

On June 28, Judge Amy Berman Jackson of the District Court for the District of Columbia dismissed charges from the SEC alleging that secondary sales of Binance’s BNB token and BUSD stablecoin comprise the distribution of unregistered digital asset securities. The court also dismissed charges related to Binance’s Simple Earn product.

“In the court’s view, then, the SEC’s suggestion that the token is ‘the embodiment of the investment contract’ as opposed to the subject of the investment contract, muddied the issues before the Court,” Bearman said. “No one should read this case as deciding that crypto assets themselves are or are not ‘securities’, that is not the question presented.”

Further, the judge cited an October 2023 ruling concerning Ripple’s XRP that found digital tokens do not in and of themselves comprise securities investment contracts, regardless of whether a token’s primary distribution occurred via a securities investment contract. Jackson added that the SEC’s position was inconsistent with Supreme Court rules.

“The Court notes that several of the district courts presented with SEC enforcement actions involving cryptocurrencies have taken pains to differentiate the alleged investment contracts from the tokens themselves,” Judge Jackson continued. “The Court finds these observations to be clarifying and persuasive [and] will endorse and follow the approach taken by the thoughtful judges who boldly wrestled with crypto assets before this case was filed.”

However, the court allowed the majority of the SEC’s charges against Binance to proceed, including charges that Binance’s initial coin offering for Binance Coin (BNB), ongoing sales of BNB, staking services, and BNB Vault products constituted the unlicensed offer and sale of securities.

Binance will also face charges alleging it failed to restrict U.S. investors from accessing the platform, failed to register as an exchange, broker, or clearing agency, and that Binance.US misled customers concerning the existence and adequacy of market surveillance controls.

The price of BNB is up 1% over the past 24 hours, according to The Defiant’s crypto price feeds.

Crypto notches win over SEC

Judge Jackson’s move to dismiss charges concerning the secondary sales of BNB serves as a major blow in the SEC’s efforts to classify digital assets as securities, with the regulator frequently attempting to classify the secondary sales of cryptocurrencies as the unregistered sale of securities investment contracts.

“The ruling dismissing the SEC’s claims involving secondary market sales by third parties is clearly a win for the greater crypto industry,” said James Murphy, a crypto-focused attorney.

Gabriel Shapiro, general counsel at Delphi Labs highlighted the significance of Jackson citing Judge Torres’ rulings concerning Ripple as precedent informing her decision.

In October, Torres ruled that “XRP, as a digital token, is not in and of itself a ‘contract, transaction or scheme’ that embodies the Howey requirements of an investment contract,” The Howey Test is a legal framework used to determine whether an investment offering qualifies as a security.

“It’s a massive validation of Torres’ Ripple approach of applying Howey transaction-by-transaction rather than accepting the SEC’s vague and ever-mutable arguments,” Shapiro tweeted. “The judge specifically says it’s possible some secondary market transactions can be covered under Howey, but the SEC will have to really plead with particularity.”

The SEC sued Binance in June 2023 for alleged securities law violations.

The action followed the Commodity Futures Trading Commission (CFTC) suing Binance for operating an illegal digital asset derivatives exchange in March 2023. The U.S. Department of Justice (DoJ) also reportedly began investigating Binance alongside its co-founder and former CEO, Changpeng Zhou, over money laundering, sanctions, and unlicensed money transmission violations in 2018.

Binance agreed to pay a $4.3 billion settlement with the DoJ in November, which also concluded the enforcement action from the CFTC. Changpeng Zhou similarly pleaded guilty in November and agreed to step down, and was sentenced to four months in prison on April 30.

Vitalik slams U.S. regulatory landscape

The news comes after the SEC has attracted sustained criticism for waging a campaign of retroactive regulation-by-enforcement targeting the crypto industry since Gary Gensler’s appointment to chair the agency in 2021.

The situation culminated in Coinbase suing the SEC in April 2023 for failing to adhere to its formal rulemaking process regarding cryptocurrency. Consensys, the blockchain software development firm behind MetaMask, also sued the SEC in a bid to secure a court order that ETH is not a security in April.

On May 29, Vitalik Buterin, Ethereum’s chief scientist, took to Warpcast, a decentralized social media platform powered by Farcaster, to voice his frustration with the U.S. regulatory climate.

“The main challenge with crypto regulation (especially in the U.S.) has always been this phenomenon where if you do something useless, or something where you’re asking people to give you money in exchange for vague references to potential returns at best, you are free and clear,” Buterin said. “But if you try to give your customers a clear story of where returns come from, and promises about what rights they have, then you’re screwed because you’re ‘a security’.”