SEC Moves Against Binance Citing Terraform Labs Precedent

SEC Leverages Previous Ruling in New Case

In a recent development, the US Securities and Exchange Commission (SEC) has initiated legal action against Binance, the world's foremost cryptocurrency exchange. The case, filed in the US District Court for the District of Columbia, draws parallels with the SEC's actions in the Terraform Labs case.

Judge Jed Rakoff's ruling on December 28 favoured the SEC against Terraform Labs. The judgement recognised certain Terraform tokens as securities, mainly due to their nature as investment contracts. This ruling is now a pivotal reference in the SEC's current lawsuit.

The SEC's focus is on Binance's various offerings. These include the stablecoin BUSD, staking-as-a-service, the BNB vault, and simple earn programs. The commission argues that the Terraform Labs precedent might influence Judge Amy Jackson to deny Binance's request to dismiss the case.

A significant statement from the motion reads: “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.”

In Terraform's case, the court found the defendants guilty of illegally offering and selling the UST stablecoin and other crypto assets as unregistered securities. The SEC alleges Binance engaged in similar violations with its BUSD stablecoin.

The SEC's argument hinges on the Terraform ruling's emphasis on securities regulations applying to crypto assets, irrespective of the sales platform. This recent judgment bolsters the SEC's position against Binance, Zhao, and others, for alleged violations of securities laws through unregistered offers and sales, misleading statements, and improper practices.

The SEC also notes that Binance allowed significant US customer trading on its platform. Furthermore, despite claims of independence, Binance US allegedly remained under Zhao’s covert control.

If Judge Amy Jackson's stance aligns with Rakoff’s in the Terraform ruling, Binance's potential dismissal motion could face serious challenges as the case progresses.