Crypto exchange Binance filed a motion for the court to dismiss the Securities and Exchange Commission (SEC) lawsuit alleging the US securities’ regulator misinterpreted securities laws. Binance and chief executive Changpeng Zhao’s submission accuses the SEC of imposing authority retroactively and misinterpreting the securities laws.
Binance and Zhao filed the joint motion on Thursday, September 21, seeking the dismissal of charges levied against them by the SEC. The filing before the District of Columbia Court alleges that the SEC exceeded its regulatory authority to file the lawsuit.
The sixty-page petition contends that the SEC failed to offer clear guidelines to the digital assets sector before initiating the charges against Binance Holdings and Zhao. The legal representatives submit that the SEC attempts to impose authority over the cryptocurrency industry retroactively.
SEC Accused of Distorting Securities Laws’ Text
The defendants’ counsel indicated that the SEC attempts to claim regulatory power by distorting the text of securities law provisions. The filing accuses the SEC of singling out ‘contract’ from the contextualized statutory phrase investment contract.
The counsel submits that the SEC seeks to enlarge jurisdiction globally by including oversight over transactions executed on foreign cryptocurrency platforms. The filing demonstrates that by doing so, the SEC defies the Supreme Court precedent that ring-fenced the agency’s regulatory authority within the US borders.
The petition profiles the SEC’s pursuits as retroactive as it seeks to impose liability in crypto assets sales in transactions dated July 2017. The legal team indicates that the SEC has yet to provide public guidance on digital assets.
The motion filed on Thursday seeks the dismissal of SEC’s complaint in its entirety. The motion identifies the defendants in the case to include BAM Trading Services, the American subsidiary that runs the Binance.US exchange.
The sixty-page petition argues that the SEC distorts securities laws to seize and exercise regulatory power over the digital assets industry. The representatives’ plea emphasizes that the SEC lacks legitimate authority over the crypto exchanges, thus the need to dismiss the claims.
SEC Pursues Binance and Affiliates
The motion was related to the legal action initiated by the SEC in June, accusing Binance and affiliates of offering unregistered securities and running unlawfully in the US. The initial complaint by the SEC alleges that Binance commingled customer funds.
The legal representatives allege the involvement of Merit Peak to commingle customer funds, given that Zhao exercised control over the entity. The legal battle saw the SEC submit an emergency freeze order targeting the assets owned by Binance.US. SEC indicated that doing so within 24 hours safeguards the customers’ funds.
The lawsuit has seen the SEC step up restrictions against Binance recently. The apparent lack of transparency triggers the move. The bid for additional restrictions revives the legal battles despite striking a deal to avoid freezing the exchange’s assets.
Binance.US promised to exercise oversight and transparency. Further, the agreement agreed upon by the parties had Zhao and affiliate entities cease access to the funds.
Restrictions Eroding Binance.US Trading Volume
A case review shows that the court granted SEC’s plea to unseal documents it considers critical to the ongoing charges. The early September approval of the SEC’s request plunges Binance.US into endless regulatory challenges.
The restrictive nature of regulatory proceedings facing Binance.US adversely affects its trading activities. The platform’s daily trading volumes plunged 98% since September last year.
Beyond trading volume, Binance.US has suffered a series of departures of key employees. A September 13 publication revealed that Binance.US was executing a fresh round of layoffs.
The staff was reduced by a third as it lost chief executive Biran Shrodder. The sudden departure prompted Norman Reed, who currently serves as the chief legal executive.
Also, Binance lost its global executive of product, Mayur Kamat. Other notable departures include the general counsel Hon Ng, compliance executive Steven Christie, and the strategy executive Patrick Hillmann.