US federal judge dismisses lawsuit against Binance for violating securities laws

A US federal judge has dismissed a lawsuit filed back in 2018 against Binance, the world’s largest crypto exchange by trading volume. The company had been accused of violating US securities laws and not being registered as a US exchange.

The lawsuit, originally filed in US District Court for the Southern District of New York, was filed by a group of investors alleging 2017 and 2018 in EOS, BNT, SNT, QSP, KNC, TRX, FUN, ICX, OMG , LEND, ELF and CVC tokens. The lawsuit was later amended and only nine tokens were mentioned; BNT, SMT and CVC were dropped from the complaint.

Investors claimed that the tokens lost most of their value since the purchase and demanded compensation for the price paid for the tokens and the fees paid by Binance for their purchases. The lawsuit stated:

“Binance and the issuers have improperly conducted millions of transactions, including the collection, offering and sale of securities, without registering tokens as securities and without registering Binance with the SEC as an exchange or dealer. As a result, investors have not been made aware of the significant risks associated with these investments, as required by federal and state securities laws.”

The investors also argued that Binance has benefited from the excitement generated by the marketing of cryptocurrency tokens and initial coin offerings (ICOs) for the projects, and even more so from the associated trading fees, stating that they bought the tokens with the reasonable expectation of profit from holding these tokens.

In his March 31 decision, Judge Andrew Carter said investors were late in suing because they waited more than a year to file the lawsuit after purchasing the tokens. Most of the tokens were bought in 2018, and the first lawsuit was only filed in April 2020.

Judge Carter further said that domestic securities laws do not apply to Binance as it is not a local exchange in the US, but a company with its headquarters in the Cayman Islands. Binance uses Amazon Web Services to host its infrastructure, which is based in the United States, but that’s not enough to classify Binance as a domestic exchange:

“It is not sufficient for plaintiffs to go beyond merely alleging that they acquired the tokens in the United States and that ownership was transferred, in whole or in part, to servers in California hosting the Binance website.”

This is not the only class action lawsuit filed against a crypto on this basis. On March 11, a lawsuit was filed against Coinbase in the same court, also alleging that it is an unregistered securities exchange. The further reasoning is similar: the plaintiffs claim that they were not warned about the risks of investing in cryptocurrencies.