The US Court allows a legal case over Binance’s sale of unregistered tokens to move forward.
Investors claim Binance failed to adequately disclose the risks associated with various tokens, including ELF and EOS.
Binance contested the application of US securities laws, citing the company's operations outside US jurisdiction.
The US Supreme Court has denied Binance and its former CEO, Changpeng ‘CZ’ Zhao, their bid to avoid a class action lawsuit from investors accusing the exchange of illegally selling unregistered tokens. This decision upholds a lower court’s ruling that the case can proceed.
The complaint filed by affected investors who purchased tokens, including ELF, EOS, FUN, ICX, OMG, QSP, and TRX, through Binance, alleged that the exchange failed to warn them about the risks associated with these tokens. One of the main objectives of the lawsuit is to recover the money they invested.
Jurisdiction Debate Centers on US Securities Laws
Binance countered the allegations, arguing that US securities laws should not apply because its operations did not fall within US jurisdiction. The exchange referred to the 2010 Supreme Court ruling in Morrison v. National Australia Bank, which restricted the application of US laws to foreign companies.
The 2nd US Circuit Court of Appeals in Manhattan ruled that US securities laws could apply to Binance, even though it is not a US-based company. The court reasoned that token purchases became final in the US when investors paid for them, and Binance used US servers.
In its appeal to the Supreme Court, Binance argued that the 2nd Circuit misapplied the Morrison decision, claiming the court improperly allowed US laws to apply across various stages and countries. This reintroduced a standard the Supreme Court had previously dismissed, which allowed US laws to apply if transactions occurred in or affected the US.
The exchange further noted that its appeal raised global concerns regarding when and how US securities laws should apply to international platforms like Binance.com. The court’s decision is another setback for Binance, which was founded in China and has already faced numerous legal challenges in the US.
Separate Legal Battles Add to Binance’s Challenges
This ongoing case is separate from Binance’s November 2023 guilty plea and the over $4.3 billion fine for violating US anti-money laundering and sanctions laws. Former CEO CZ, who was sentenced to four months in prison for a related case and released in September, faced charges including failure to implement effective anti-money laundering measures as mandated by the Bank Secrecy Act. He was also accused of facilitating transactions tied to illegal activities, including dealings between US users and individuals in restricted areas.
In another separate legal battle, Binance and Zhao are being sued by the collapsed crypto exchange FTX, which claims that $1.8 billion was improperly transferred by FTX management to Binance and its leaders.
Several countries have banned or restricted Binance’s operations within their borders due to regulatory issues. Nations such as Canada, Japan, and Germany have implemented regulations that prevent Binance from operating in their jurisdictions.
Temitope is a writer with more than four years of experience writing across various niches. He has a special interest in the fintech and blockchain spaces and enjoy writing articles in those areas. He holds bachelor's and master's degrees in linguistics. When not writing, he trades forex and plays video games.