Binance, Binance.US, and co-founder Changpeng “CZ” Zhao have filed a joint response to the U.S. Securities and Exchange Commission (SEC). They argue against the SEC’s reliance on a default judgment in the Coinbase insider trading case, SEC v. Wahi, as a precedent in their ongoing lawsuit. The response, submitted on March 8, highlights the unique circumstances under which the Wahi judgment was issued and questions its relevance to the Binance case.
The defendants point out that the judgment in the Wahi case resulted from a lack of opposition by defendant Sameer Ramani, rather than a thorough legal examination of the SEC’s arguments. They emphasize that the decision did not consider Judge Torres’ ruling in SEC v. Ripple Labs, which challenged the SEC’s broad interpretation of crypto tokens as “investment contracts.”
Legal landscape and jurisdictional questions
The Binance legal team also references the D.C. Circuit’s decision in SEC v. Life Partners, further questioning the SEC’s approach to classifying digital assets. This comes amid ongoing debates within the regulatory community about the nature of digital assets, with CFTC Commissioner Caroline Pham criticizing the SEC’s broad classification of these assets as securities in 2022. The SEC’s settlement with other defendants in the Wahi case, after challenges to its interpretation of securities laws, is cited as evidence of the contentious nature of these classifications.
The recent revival of a class action lawsuit against Binance and Changpeng Zhao by the Second Circuit Court of Appeals adds another layer to the discussion. This lawsuit, which alleges that crypto investors purchased securities from Binance, does not directly address whether the involved crypto tokens are securities. However, it raises significant questions about the jurisdiction and territorial reach of U.S. securities laws, especially concerning the secondary market trading of digital assets.
Implications for the crypto industry
The Binance response seeks to persuade the court to dismiss the SEC’s lawsuit, arguing that the Wahi case should not serve as a precedent. This stance is supported by Coinbase CLO Paul Grewal, who has publicly stated that the Wahi default judgment does not set a valid precedent for other lawsuits or for asserting jurisdiction over the crypto industry.
The ongoing legal battles highlight the need for clarity in the regulatory framework governing digital assets. As the industry continues to evolve, the outcomes of these cases could have significant implications for how digital assets are classified and regulated in the future. Binance’s challenge to the SEC’s use of the Wahi case as a precedent underscores the complexities of applying traditional securities laws to the rapidly changing landscape of cryptocurrency and blockchain technology.
