Binance, the world's largest cryptocurrency exchange, along with its Chief Executive Officer, Changpeng Zhao, filed court papers on Thursday seeking to dismiss a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). The SEC had charged Binance, Binance.US and Zhao in June with a series of allegations including mishandling customer funds, misleading investors and regulators, and breaking securities rules.
The lawsuit sparked a legal dispute over who could access customer funds. Binance and Zhao, in their filings on Thursday, claimed that the SEC was overreaching in its allegations of securities law violations. They argued that the regulator was attempting to impose penalties retroactively before providing any public guidance regarding cryptocurrencies.
The filings also stated that the SEC's definition of "investment contract" was too broad and that it was trying to encompass all digital assets under its authority despite Congress not explicitly specifying this in legislation. The defendants pointed out that since 2019, Congress has considered more than a dozen proposals for a coherent framework for crypto assets and their trading platforms but none would provide sole regulatory jurisdiction over the crypto industry to the SEC.
This argument has been divisive in court, with some judges suggesting that Congress needs to clarify the regulatory treatment of digital assets. While the House Financial Services Committee has advanced a few crypto-specific bills for a vote in the full House, it remains unclear whether these will pass through the Senate.
Binance, Binance.US, and Zhao have consistently denied the allegations made by the SEC. This case followed another lawsuit from the US derivatives watchdog in March alleging that Binance and Zhao had routinely violated its rules.
The legal challenges have had repercussions for both Binance and Binance.US. Their market shares have dropped significantly in recent months due to these regulatory pressures. The CEO of Binance.US departed earlier this month, coinciding with layoffs of about a third of the platform's workforce.
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