Binance Fights SEC Allegations, Cites Lack Of 'Howey Test' Criteria In Lawsuit

Crypto exchange Binance, its U.S. counterpart Binance.US, and founder Changpeng Zhao have contested the U.S. Securities and Exchange Commission's (SEC) allegations, arguing that the financial watchdog failed to establish the criteria of the "Howey Test" in its lawsuit against them.

The filings, submitted separately by Binance and Binance.US, contend that the SEC has not demonstrated that the exchanges' U.S. customers were involved in any contracts qualifying as "investment contracts" under the Howey Test, Coindesk reported.

This challenge forms part of their ongoing effort to dismiss the lawsuit initiated by the SEC in June, which accuses the companies of enabling the public to trade unregistered securities through certain cryptocurrency listings and staking services.

Binance, which recently resolved various charges with multiple U.S. regulatory bodies, including the Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN), maintains that the SEC is overstepping its authority.

This stance was reiterated in their September motion to dismiss the SEC lawsuit, echoing a similar argument made in a July filing against a Commodity Futures Trading Commission suit.

In their latest filing, Binance and Binance.US argue that the SEC has not proven any obligations owed to users who purchased specific cryptocurrencies, suggesting the absence of an investment contract as required by the Howey Test. Binance also refutes the SEC's attempt to leverage the exchange's guilty plea with the DOJ and a consent order with FinCEN in the ongoing case.

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The SEC, however, contends that Binance's settlements indicate its awareness of operating within the U.S. and serving American customers.

The SEC believes these factors should influence the court's decision on the motion to dismiss.

Furthermore, Binance asserts that the securities laws, unlike the Bank Secrecy Act or the International Emergency Economic Powers Act (laws relevant to their settled charges), should not apply in this context.

The company argues that the DOJ plea agreements and the consent order do not implicate securities laws, emphasizing that their violations of the Bank Secrecy Act do not automatically imply violations of securities regulations.

"Zhao’s and Binance’s plea agreements and the Consent Order provide further grounds for this Court to deny the Joint Motion to Dismiss," the SEC stated, highlighting the significance of these agreements in the ongoing legal battle.

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