The Securities and Exchange Commission (SEC) has submitted a notice of supplemental authority to the court presiding over its case against Binance. This move highlights the recent Terraform ruling, which deemed UST, LUNA, wLUNA, and MIR securities under the Howey test significant precedents. The SEC parallels this ruling and its allegations that the Binance-issued stablecoin, BUSD, is also a security. This development adds a new dimension to the ongoing legal scrutiny of cryptocurrency assets and their classification under federal securities laws.
In its filing, the SEC pointed out that BAM Management and BAM Trading, entities associated with Binance, had previously referred to the Terraform case in their September motion to dismiss the SEC’s claims. At that time, they argued that Terraform’s situation supported their defense, not the SEC’s stance. However, the SEC now argues that the latest Terraform ruling aligns more closely with its perspective on digital assets as investment contracts.
Judge Rakoff’s Terraform ruling: A game changer
A key aspect of Judge Jed Rakoff’s decision in the Terraform case is his interpretation of the Howey test as a definitive legal standard. This approach could have significant implications for the Binance case. Rakoff noted that while UST was not initially considered a security due to its stable value, the situation changed when UST holders could deposit their tokens into the Anchor Protocol for profit. Terraform’s active promotion of this feature as a high-yield opportunity was a critical factor in Rakoff’s decision.
The SEC argues that this finding is highly relevant to their case against Binance. They assert that the offer and sale of BUSD, along with Binance’s staking-as-a-service, BNB Vault, and Simple Earn programs, mirror the circumstances of the Terraform case. In this context, the SEC contends that these offerings by Binance could be construed as investment contracts, thus falling under the purview of federal securities laws.
On the other hand, Terraform has expressed strong disagreement with the ruling, maintaining that UST and other tokens should not be classified as securities. This contention underscores the ongoing debate in the crypto industry regarding the appropriate classification and regulation of various digital assets.
Implications for the crypto industry
The SEC’s reference to the Terraform ruling in its case against Binance could have far-reaching implications for the cryptocurrency industry. Accepting the SEC’s arguments could set a precedent for how stablecoins and other crypto assets are treated under U.S. securities laws. Such a development could trigger a wave of regulatory actions against other crypto entities, potentially reshaping the landscape of the digital asset market.
Moreover, the outcome of the Binance case, particularly in light of the Terraform precedent, could influence how regulators and industry participants approach the design, promotion, and governance of crypto assets. This situation highlights the evolving nature of regulatory frameworks as they attempt to keep pace with the rapid innovation and diverse functionalities within the cryptocurrency sector.
The SEC’s decision to cite the Terraform ruling in its case against Binance marks a significant moment in the ongoing effort to define the regulatory boundaries of the cryptocurrency market. As the case progresses, it will be closely watched by industry participants, regulators, and legal experts for its potential to influence the future of digital asset regulation.
