SEC Targets Binance Again: Amended Complaint Highlights Token Listings and Trading Process

With its founder and former CEO currently in prison, Binance could be forgiven for thinking the SEC might cut it some slack. But no, just when Binance thought it dodged the hammer, the SEC has come back swinging–this time with a bigger mallet aimed straight at its token listings.

The Securities Exchange Commission (SEC) focused on Binance’s token listing and trading procedures in its proposed amended complaint against the exchange filed recently. The complaint came into the spotlight a few months after the federal judge presiding over the case granted the regulator’s motion to dismiss, indicating the SEC intends to retaliate in its lawsuit against the crypto exchange.

In the proposed amended complaint, the SEC argues the judge’s concerns about dismissing certain parts of its initial lawsuit–particularly Binance’s Simple Earn product and BNB token sales projects. It also strengthened other allegations that the judge did not fully address in her decision, specifically 10 digital assets that the SEC used as evidence that Binance was acting as an unregistered securities provider.

“The MTD Order dismissed these claims based on insufficient factual allegations to meet the Howey test, as opposed to a defective legal theory,” the SEC filing stated.

The SEC first filed a lawsuit against Binance in June 2023, alleging that both Binance and BAM Trading were obliged to register as an exchange, a clearing agency, and a broker-dealer with the SEC.  The SEC’s fraud case claimed that BAM Trading and BAM Management had misled investors about their internal controls.

In a June 2024 ruling, Judge Amy Berman Jackson allowed the majority of the SEC’s charges to go forward while dismissing allegations related to Binance’s secondary BNB sales and Simple Earn product.

Nonetheless, during a hearing in July 2024, lawyers debated whether the judge’s decision meant that the 10 cryptocurrencies that the SEC claimed were also distributed as unregistered securities remained relevant to the case. Since Binance and its affiliated parties still have an opportunity to respond and have been aware of the accusations since last June, the SEC said that granting the motion to file an amended complaint won’t negatively impact Binance and its affiliated parties. The exchange has until October 11 to oppose the motion.

Binance founder and former CEO Changpeng ‘CZ’ Zhao is currently serving a four-month prison term in FCI Lompoc II. He is due for release on September 29th. Image Source: US Bureau Of Prisons.

The proposed amended complaint goes into much more detail about the SEC’s claims regarding Binance’s listing of different tokens, including its native coin, BNB, and how the regulator believes the company encourages investments in these tokens.

The complaint also added that some cryptocurrencies are built on top of blockchains, while others are native to a particular blockchain. It was made clear in another line that, similar to proof-of-work networks, proof-of-stake networks continue to pay validators. Also, “initial exchange offerings” is added to the initial coin offerings section in the proposed filing.

Another significant addition to the filing claims that Binance plays a crucial role in the market for cryptocurrency assets are offered for sale as securities. It allegedly provides these markets with information by amplifying and republishing the statements and actions of issuers and promoters.

The SEC claimed that Binance’s BNB burns and support for BNB-using projects are also intended to help increase the token’s value. According to their allegation, Binance paid BNB employees in the United States, including executives from BAM Trading (Binance.US). The filing provides similar additional information about Binance Simple Earn and the ten digital assets – ADA, ALGO, ATOM, AXS, COTI, FIL, MANA, MATIC, SAND, and SOL were sold on the Binance platform as unregistered securities.

Clarifying Confusions Around Crypto Assets and Securities

In the proposed amended complaint motion, the SEC claimed that it was eliminating the phrase “crypto asset securities,” noting in a subsection that the agency “is not referring to the crypto asset itself as the security.” In contrast, the SEC stated that it “regrets any confusion that may have been invited” by referring to “the full set of contracts, expectations, and understandings centered on the sales and distributions” of the relevant digital assets when using the phrase.

“Crypto assets that were offered and sold as securities” replaced “crypto asset securities” in several points of the proposed amended complaint.