On November 4, Binance’s legal team filed a motion in response to the SEC’s latest complaint, arguing that secondary market sales of crypto assets should not be considered “securities” transactions. This legal motion marks a significant moment in the ongoing regulatory struggle that has been unfolding between the SEC and Binance since mid-2023.

Timeline of the Case: From Initial Accusations to Amended Complaints

The SEC first brought its case against Binance and CZ in June 2023, alleging that Binance had engaged in the sale of unregistered securities. The SEC’s original complaint claimed that Binance was in violation of federal securities laws by allowing trading of specific tokens, including BNB, its native token, without proper registration. The SEC argued that Binance was knowingly facilitating transactions that constituted securities sales without proper regulatory clearance.

Despite the Binance exchange’s many legal challenges, the price of its native token BNB has been remarkedly consistent for most of the year. Source: Brave New Coin BNB Market Cap

Over the course of the following months, the case escalated. In response to the SEC’s accusations, Binance’s legal team argued that cryptocurrency tokens are not inherently “securities” and thus should not be subject to traditional securities laws unless they meet specific criteria established by the SEC. In a landmark statement, Binance’s defense argued that secondary market transactions — or resales of tokens on the open market, far removed from their initial distribution by the developers — do not qualify as securities transactions.

In September 2023, the SEC amended its complaint, adding several new tokens, including Axie Infinity Shards (AXS), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), and Decentraland (MANA), to the list of tokens it claimed were unregistered securities. Binance’s legal team pushed back, arguing that these amendments failed to address the fundamental issues raised in the initial case. They contended that the SEC was overreaching by categorizing these assets as securities without offering a clear legal standard for their classification.

Binance’s Recent Motion: A Pushback on “Blind Transactions” and Legal Definitions

In its November 4 motion, Binance’s legal team reiterated its stance that the SEC’s approach is legally flawed. The defense emphasized that the court had previously acknowledged that crypto assets are not automatically securities. For a transaction to qualify as a securities transaction, Binance argued, it must be proven that the buyer knowingly participated in an investment contract as defined under securities law. Binance contends that the SEC is trying to label “blind” secondary transactions — where buyers are unaware of the seller’s identity — as securities transactions, solely on the grounds that some buyers might expect the tokens’ value to increase.

The legal team accused the SEC of “arbitrarily choosing winners and losers” in the crypto space by failing to define clear guidelines on what constitutes a security. Binance’s defense urged the court to dismiss the amended complaint “with prejudice” — a legal term meaning that the case would be closed permanently, preventing the SEC from filing additional amendments.

The next phase of the case will hinge on how the court interprets the SEC’s stance on crypto regulation. The court’s ultimate decision may influence the treatment of secondary transactions in the crypto market, potentially setting a significant precedent in the ongoing debate over crypto asset regulation in the United States.