U.S. Judge Lets Most of SEC Case Against Binance Proceed, Dismisses Secondary Sales Charge

A federal judge dismissed part of the U.S. Securities and Exchange Commission's (SEC) lawsuit against crypto exchange Binance and founder Changpeng Zhao, but allowed other charges, including charges against the holding company for Binance.US, to proceed.

In a late Friday order, Judge Amy Berman Jackson, of the District Court for the District of Columbia, ruled that the SEC's charges against Binance for the initial coin offering and ongoing sales for BNB, BNB Vault, staking services, failure to register and fraud charges can proceed. She granted Binance and Zhao's motion to dismiss charges tied to secondary BNB sales and Simple Earn.

The SEC sued Binance, Binance.US and Zhao last summer, alleging the exchanges were offering unregistered broker, trading and clearing services in the U.S. for unregistered digital asset securities. The regulator has brought similar charges against Coinbase, Kraken and – as of Friday morning – Consensys and MetaMask.

The SEC had brought a plausible claim under most of the charges it filed, Judge Jackson wrote in her order Friday.

"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," she wrote. "... The Court finds these observations to be clarifying and persuasive, as the differentiation is consistent with the Supreme Court’s earliest pronouncements concerning the meaning of the term 'investment contract' buried within the lengthy list that comprises the definition of a 'security.'"

Zhao is currently serving a 4-month sentence tied to a sanctions violation charge brought by the Department of Justice and the Treasury Department. The SEC's case against him is separate from this criminal charge.

The judge cited Judge Analisa Torres' 2023 ruling in the SEC's case against Ripple Labs in granting Binance's motion to dismiss the secondary BNB sales claim, saying the economic reality of the tokens' transactions mattered to the application of securities law.

Like other judges, Judge Jackson rejected arguments that the SEC can't bring enforcement actions against crypto entities under the "major questions doctrine," a Supreme Court precedent that said Congress must direct federal agencies' authorities when it comes to significant industries.

"The Court has not been given grounds to find that the industry, while important, has the broad reach that has motivated courts to apply the doctrine to other industries," the judge wrote Friday.

The judge scheduled a hearing for July 9.