Binance wins class action lawsuit dismissal over 2018 fallen tokens

A federal judge has dismissed a class action lawsuit alleging that Binance violated U.S. securities laws by failing to register as a broker-dealer or exchange and by selling crypto tokens that were not registered with the U.S. Securities and Exchange Commission.

The original lawsuit, filed in US District Court for the Southern District of New York, was filed by a group of investors who say they invested in tokens EOS, BNT, SNT, QSP, KNC, TRX, FUN, ICX , OMG, LEND have invested. ELF and CVC around 2017 and 2018. An amended complaint was filed listing only nine tokens, with BNT, SMT and CVC removed.

Investors said the tokens have lost a lot of value since the purchase and are demanding compensation for the price paid for the tokens and the fees paid to Binance related to their purchases.

“Binance and the issuers have unfairly conducted millions of transactions, including solicitations, offerings and sales of securities, without registering the tokens as securities and without Binance registering with the SEC as an exchange or broker-dealer. As a result, investors have not been made aware of the significant risks associated with these investments, as required by federal and state securities laws.”

The investors further claimed that Binance benefited from the buzz generated by cryptocurrencies, marketing tokens, and Initial Coin Offerings (ICOs) on behalf of projects and benefited from the associated trading fees, adding that they “purchased the tokens discourage those who bought them with a reasonable expectation of profit from owning them”.

In his decision of Thursday, March 31, Judge Andrew L. Carter said investors were late in filing suit because they waited more than a year to file the lawsuit after purchasing the tokens. Most of the tokens were bought in 2018 and the original submission was only in April 2020.

Investors argued that when the SEC released a framework in April 2020 alleging that digital tokens were securities, the complaint filing period should have started, but Carter noted that the relevant laws apply when the suspected infringement occurs, not when discovered.

Judge Carter also said that domestic securities laws do not apply to Binance as it is not a domestic exchange in the US and is headquartered in the Cayman Islands. While Binance uses Amazon Web Services to host its infrastructure and is based in the US, that’s not enough for Binance to be considered a domestic exchange.

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“The plaintiffs have more to allege than allege that the plaintiffs purchased tokens while in the United States and that all or part of the title passed through servers in California that host Binance’s website,” Carter wrote in the application.

This is not the only class action lawsuit filed against a crypto exchange for such reasons. 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 being leveled against Coinbase, with plaintiffs saying they were not warned about the risks of cryptocurrency investing.

Binance did not immediately respond to Cointelegraph’s request for comment.