SEC leverages Terraform Labs ruling in Binance proceedings

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The US Securities and Exchange Commission (SEC) has filed a motion against Binance, the largest crypto exchange in the world, in the US District Court for the District of Columbia. The motion highlighted the similarities between its actions against Binance, Binance US, and its former CEO and founder, Changpeng Zhao, with the Terraform Labs case, where its co-founder Do Kwon faced legal action by the SEC for allegedly conducting unregistered securities offerings and fraudulent activities related to their tokens. 

This connection stems from a December 28 ruling by Judge Jed Rakoff, who ruled in favor of the SEC against Terraform Labs. Judge Rakoff’s decision acknowledged that specific tokens in the Terraform case qualified as securities, mainly because they were investment contracts.

The SEC’s latest filing focuses on Binance’s stablecoin BUSD, its staking-as-a-service, BNB vault, and simple earn programs. The SEC argues that this precedent could influence Judge Amy Jackson to reject Binance’s request to dismiss the case.

One of the statements in the motion read as follows:

“Plaintiff Securities and Exchange Commission (“SEC “) respectfully submits this Notice of Supplemental Authority to inform the Court of a recent ruling in SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346 (JSR) (SDNY) (“Terraform”). On December 28, 2023, the Terraform court issued its opinion on cross-motions for summary judgment, resolving in the SEC’s favor a number of issues similar to those that Defendants raise here.”

The cited court decision found that in the Terraform case, defendants illegally offered and sold the stablecoin UST and other crypto assets as unregistered securities without qualifying for exemptions from securities regulations. The SEC alleges that Binance committed similar violations by offering and selling its BUSD stablecoin without proper registrations or exemptions.

Through this motion against Binance, the SEC argues the Terraform ruling supports their charges that Binance unlawfully engaged in the unregistered offers and sales of securities like BUSD.

The Terraform ruling emphasized that securities regulations apply to crypto asset securities regardless of whether the defendant directly sold or resold them on crypto exchanges like Binance.

Overall, the SEC argues this recent judgment supports their position in alleging that Binance, Zhao, and others violated securities laws through unregistered securities offers and sales, false statements, and improper practices. They contend it provides grounds for denying the defendants’ motions to dismiss the SEC’s complaint. 

The SEC also claims that Binance continued to allow high-value US customers to trade on its platform. Additionally, Binance US, while claiming independence, was allegedly under Zhao’s secret control.

If Judge Amy Jackson takes a position similar to Rakoff’s Terraform ruling, it could undermine any motion to dismiss by Binance during the case’s progression.

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