A federal judge dismissed a class action lawsuit alleging that Binance violated US securities laws by not registering as a broker-dealer or exchange and selling cryptocurrency tokens that were not registered with the US Securities and Exchange Commission (SEC).
The original complaint filed in the U.S. District Court for the Southern District of New York was filed by a group of investors who claim to have invested in EOS, BNT, SNT, QSP, KNC, TRX, FUN, ICX, OMG, LEND,ELF and CVC tokens around 2017 and 2018. An amended complaint was filed listing only nine tokens and BNT, SMT and CVC were removed.
Investors stated that the tokens had lost most of their value since the purchase and demanded compensation for the price paid for the tokens and the fees paid by Binance in connection with their purchases.
“Binance and issuers have improperly engaged in millions of transactions, including the collection, offering and sale of securities, without registering tokens as securities and without registering Binance with the SEC as an exchange or 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 also stated that Binance has capitalized on the enthusiasm generated by cryptocurrencies, marketing tokens, and Initial Coin Offerings (ICOs) on behalf of the projects and has profited from the associated trading fees, and added that they have “purchased the tokens with a reasonable expectation of profit.” from owning them.
In his decision dated Thursday, March 31, Judge Andrew L. Carter stated that because investors waited over a year to file a complaint after purchasing the tokens, they filed a lawsuit too late. Most of the tokens were purchased in 2018, and the initial submission of applications was made only in April 2020.
Investors have argued that since the SEC published a basis claiming digital tokens are securities in April 2020, then the timeline for filing a complaint should have begun, but Carter found that the relevant laws apply when an alleged violation occurs, not when it is discovered. .
Judge Carter also stated that domestic securities laws do not apply to Binance as it is not a local U.S. exchange headquartered in the Cayman Islands. Binance uses Amazon Web Services to host its infrastructure, which is based in the US, but this is not enough to consider Binance as a local exchange.
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“Plaintiffs must plead not only that Plaintiffs purchased the tokens while in the US and that ownership of all or part of it has transferred to servers located in California that host the Binance website,” Carter wrote in the petition.
This is not the only class action lawsuit filed against a cryptocurrency exchange on such grounds. On March 11, a lawsuit was filed against Coinbase in the same court, alleging that it operates as an unregistered securities exchange. Similar arguments are directed against Coinbase, with the plaintiffs saying they were not warned about the risks of investing in cryptocurrencies.
Binance did not immediately respond to Cointelegraph’s request for comment.