A class action lawsuit against Binance was dismissed by a federal judge. The complaint had asserted that the crypto exchange had violated the securities law in the United States, as it had not registered as an exchange or a broker-dealer and had sold crypto tokens that had not been registered with the Securities and Exchange Commission (SEC) in the US. A group of investors had filed the original complaint in the US District Court for New York’s Southern District. According to the investors, they had made investments in the tokens between 2017 and 2018, which included CVC, ELF, LEND, OMG, ICX, FUN, TRX, KNC, QSP, SNT, BNT and EOS.
The complaint had been amended and only nine tokens were listed, with CVC, SMT and BNT removed. According to the investors, the tokens in question had lost a great deal of value since they were bought and they wanted compensation for the price they had paid for the tokens, along with the fees they had paid to Binance when making their purchases. The complaint said that millions of transactions had been wrongfully conducted by Binance and the issuers, which included the offer, solicitation and sale of the securities without registering them as such and without Binance registering with the SEC as a broker-dealer, or an exchange.
Therefore, the complaint stated that investors had not been aware of the significant risks involved in these investments, as required by state and federal securities laws. The investors further stated that the world’s biggest crypto exchange in terms of trading volume had capitalized on the enthusiasm associated with cryptocurrencies. It had marketed initial coin offerings (ICOs) and tokens on behalf of profits and had made profits in the form of trading fees. They added that investors had bought the tokens in question with an expectation of making profits from owning them.
Judge Andrew Carter dismissed the lawsuit on Thursday and said that investors had filed the complaint after waiting for more than a year of buying the tokens, which meant it was too late. Most of the tokens that were bought had been in 2018 and the filing was done in April 2020. According to the investors, the timeline for submitting a complaint should have started in April 2020 because that was when the SEC had published a framework declaring that digital tokens were securities. However, Carter said that relevant laws are applicable when the violation happens, not when it is detected.
Judge Carter further added that domestic securities laws could not apply to Binance because it was not a domestic exchange in the United States, as its headquarters are located in the Cayman Islands. While Binance’s infrastructure is hosted on Amazon Web Services, which is based in the US, this is not enough to consider it a domestic exchange. This is not the only lawsuit that has been filed against a crypto exchange on similar grounds. Coinbase also became a target of such a case on March 11th, when a suit was filed against it alleging that it was an unregistered securities exchange.