A federal judge has dismissed a class action lawsuit that claimed that Binance violated US securities laws by failing to register as a broker or exchange, and sold crypto tokens that were not registered with the US Securities and Exchange Commission. (SEQ).
The original complain filed in the US District Court for the Southern District of New York was filed by a group of investors who say they invested in the tokens EOS, BNT, SNT, QSP, KNC, TRX, FUN, ICX, OMG, LEND, ELF, and CVC circa 2017 and 2018. An amended complaint was filed, listing only nine tokens, with BNT, SMT, and CVC removed.
The investors said that the tokens had lost much of their value since the purchase and were seeking compensation for the price paid for the tokens and the fees paid to Binance in connection with their purchases.
โBinance and the Issuers improperly engaged in millions of transactions, including the solicitation, offer and sale of securities, without registering the Tokens as securities and without Binance registering with the SEC as a broker-dealer. As a result, investors were not informed of the significant risks inherent in these investments, as required by federal and state securities laws."
Investors further claimed that Binance capitalized on the enthusiasm sparked by cryptocurrenciesmarketing tokens and initial coin offerings (ICOs) on behalf of the projects, and benefited from associated trading fees, adding that they "purchased the tokens with a reasonable expectation of profit from owning them."
In his decision on Thursday, March 31, Judge Andrew L. Carter said that since the investors waited more than a year after purchasing the tokens to file the lawsuit, they had filed the lawsuit too late. Most of the tokens were purchased in 2018 and the original submission was not until April 2020.
Investors argued that since the SEC published a framework affirming that digital tokens were securities in April 2020, the deadline for filing complaints should have started at that time, but Carter found that the relevant laws apply when it occurs. the alleged violation, not when it is detected.
Judge Carter also said that national securities laws are not applicable to Binance as it is it is not a domestic exchange in the United States, based in the Cayman Islands. Binance uses Amazon Web Services to host its infrastructure and is based in the US, but that is not enough to consider Binance a national exchange.
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โPlaintiffs must allege more than assert that Plaintiffs purchased tokens while in the US and that title passed in whole or in part to servers located in California that host the Binance website,โ Carter wrote in the motion.
This is not the only class action lawsuit filed against a cryptocurrency exchange on such grounds. On March 11, a a lawsuit was filed against Coinbase in the same court, claiming that it is operating as an unregistered stock exchange. Similar arguments are being leveled at Coinbase, with the plaintiffs saying they were not warned about the risks of cryptocurrency investments.
Binance did not immediately respond to Cointelegraph's request for comment.
