SEC finds more favorable judge in DC as Binance tries to dismiss lawsuit

The US Securities and Exchange Commission is once again looking to a federal judge to back up its stance of having authority over the crypto industry.

In a four-hour hearing Monday, Binance squared off with the SEC in Washington DC in an effort to dismiss charges brought against the exchange, its US arm and former CEO Changpeng Zhao last summer.

Judge Amy Berman Jackson immediately expressed doubt that Binance had a leg to stand on. She started by questioning counsel how they could possibly argue that the SEC has no right to apply securities laws to crypto when the law itself was designed to apply to financial instruments that did not yet exist when it was written.

“How do I score the arguments that you’re making regarding not using an ill fitting, big mechanism like an investment contract to embark on the regulation of this whole new industry without a clear congressional mandate with the case law that says over and over and over again that it was designed to be…flexible, designed to protect the investing public?” she asked Binance Holdings Limited attorney Jason Mendro.

“I do agree that they say that the securities laws are intended to be broad,” Mendro responded. “I’m not disputing that. But the statute has another purpose other than to be broad,” adding that there must be limiting factors, or else real estate could be a security.

The SEC filed 13 charges against Binance back in June 2023, alleging the exchange offered and sold unregistered securities through their BNB and BUSD tokens alongside other coins listed on their platforms. The SEC also claims the exchange commingled client assets.

Jackson appeared to grow frustrated with Binance’s team, at one point asking them to stop repeating their argument that investment contracts can only exist with an actual contract.

“We’re going to be wasting a lot of time If we comb through the Howey factors with respect to each asset that’s been alleged,” she said.

Jackson also noted that she had doubts Binance’s team was even interpreting the Howey test investment contract definition correctly.

“I don’t think that is what it says,” she told Mendro at one point.

Monday’s hearing comes after the SEC faced off against Coinbase last week in Manhattan during a similar hearing to dismiss charges. The SEC announced its suit against Coinbase one day after it sued Binance.

Both Coinbase and Binance’s defense teams made an appeal to invoke the major questions doctrine. This states that courts will not interpret congressional law as allowing agencies to rule on issues of “major” political or economic significance.

“Given the sweeping nature of the SEC’s statutory arguments, far more is at stake here than even the enormous impact on the crypto market,” Binance wrote in its motion to dismiss.

Jackson acknowledged Monday that this case has implications for the crypto industry as a whole. However, she is still “not inclined to think” the major questions doctrine applies in this case.

In Coinbase’s case, Southern District of New York judge Katherine Polk Failla also expressed doubt that the doctrine could apply. She noted that she did not want to overstep and “take power I don’t have, to stop something I shouldn’t.”

Binance’s hearing comes about six weeks after the exchange and Zhao entered into a plea agreement. This agreement, involving the US Department of Justice, the Commodity Futures Trading Commission, and the Department of Treasury, includes a combined financial penalty of $4.3 billion. Zhao is scheduled to be sentenced later this month.

Judge Failla is expected to decide whether or not to dismiss the SEC’s case against Coinbase in the coming weeks or months.

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
0xResearch: Alpha directly in your inbox.
Lightspeed: All things Solana.
The Drop: Apps, games, memes and more.
Supply Shock: Bitcoin, bitcoin, bitcoin.