SEC Drops Bombshell in Binance Case: Tokens Aren’t Securities

• The SEC has amended its complaint against Binance, Binance.US, and Changpeng Zhao, revising its stance on classifying certain crypto assets, acknowledging that tokens like SOL, ADA, and MATIC are not inherent securities.
• The SEC now clarifies that “crypto asset securities” refer to the contracts and agreements tied to token sales, not the tokens themselves.

The U.S. Securities and Exchange Commission (SEC) has filed a motion to amend its original complaint against Binance, Binance.US, and its co-founder Changpeng Zhao. Interestingly, the SEC has shifted its stance on the classification of certain crypto assets. In a surprising move, the SEC now acknowledges that ten major tokens, including Solana (SOL), Cardano (ADA), and Polygon (MATIC), are not considered securities under its revised approach.

This change follows a recent U.S. district court ruling in a related case against crypto exchange Kraken, challenging SEC’s broad definitions of crypto assets. The court’s decision prompted the SEC to modify its stance in its original case against Binance, per the CNF report. 

Inside SEC’s Amended Complaint

In its amended complaint, the SEC clarified its use of the term “crypto asset securities.” In addition, it stated that the term does not refer to the tokens themselves as securities but rather to the investment contracts, agreements, and understandings tied to their sales; the SEC had previously claimed that several tokens were securities by virtue of their existence.

However, it has now decided to walk back that assertion, aligning with the court’s reasoning in the Kraken case. In the filing, the SEC wrote, “As the SEC has consistently maintained since the very first crypto asset Howey case, the term is a shorthand reference… the security is not simply the [crypto asset], which is little more than an alphanumeric cryptographic sequence.” This acknowledgment marks a significant shift in the agency’s approach to crypto enforcement.

Moreover, the news sparked reactions from key figures in the crypto industry. Paul Grewal, Chief Legal Officer at Coinbase, took to X (formerly Twitter) to express his disbelief over the SEC’s reversal. He wrote, “‘The SEC regrets any confusion it may have invited’ by falsely and repeatedly stating that tokens themselves are securities. This is the remarkable representation in Footnote 6 of SEC’s Amended Complaint against Binance.”

Stuart Alderoty, Chief Legal Officer at Ripple, also made a sarcastic comment on the developments. He stated, “So the SEC finally admits that 1/ ‘crypto asset security’ is a made-up term and 2/ to prove a ‘crypto asset security’ is an investment contract, the SEC needs evidence of a bundle of ‘contracts, expectations, and understandings.’”

Next Steps for Binance

The SEC’s decision to amend its complaint represents a critical moment in its legal battle against Binance. The regulatory body is expected to continue pursuing charges against the exchange. However, now it will consider a refined focus on the specific contracts and agreements involved in selling and promoting crypto assets.

Binance will respond to the SEC’s amended complaint by the October 11, 2024 deadline. The exchange has previously denied any wrongdoing, maintaining that it operates within the bounds of the law. Hence, this recent development will likely influence the trajectory of the case. Moreover, it could narrow the scope of the SEC’s enforcement actions against Binance and other crypto exchanges.