The U.S. Securities and Exchange Commission (SEC) has fired back at Binance’s recent motion to dismiss the regulator’s lawsuit against the exchange, calling the latter’s arguments a “tortured interpretation of the law.”
In an 88-page filing with the DC Circuit on Tuesday, the agency argued that Binance had ignored most of its core allegations in a “bid to evade accountability” for its alleged violations of securities law.
Countering Binance’s Theatrics
In its preliminary statement, the SEC cited a quote mentioned in its original lawsuit, in which Binance’s Chief Compliance Officer said the company was “operating as a fking unlicensed securities exchange in the USA bro.”
“Defendants now seek to avoid the repercussions of their actions by asking this Court to dismantle decades of foundational precedent upon which the nation’s securities laws operate,” wrote the SEC, accusing the exchange of “theatrics” to distract from its violations.
In its June filing, the SEC said 12 cryptos on Binace’s platform fit the bill despite Binance never registering as a securities exchange.
In its motion to dismiss in September, Binance accused the SEC of “attempting to impose penalties retroactively” without providing clear guidance on how crypto companies can remain compliant.
It also accused the SEC of trying to claim regulatory power over the crypto industry by distorting the text of existing securities law.
By contrast, the SEC claims Binance would install a “rigid framework” for securities regulation, adding arbitrary new prongs to the Howey Test – a decades-old legal precedent for identifying investment contracts.
For example, the exchange argued that contracts must be “forward-looking” and involve “post-sale obligations [that] are legally enforceable,” among other things, for which the company “not cite one case holding that these nebulous requirements are part of the analysis.”
Are Cryptos Really Like Oranges?
Binance also tried to compare cryptocurrencies within an investment contract to oranges and baseball cards – an analogy taken up by other crypto lobbyists that have backed Binance in its legal battle. The comparison is intended between the subject of an investment contract – which could be an orange, crypto, or any other asset – and the “investment contract” itself.
However, the SEC dismissed this comparison as “absurd.”
“If oranges alone were at issue, those selling and promoting these assets and Defendants themselves would have had no need to entice investors with extended marketing campaigns touting their potential to increase in value based upon the efforts of others,” the agency wrote.
In response to the SEC’s filing, former official John Reed Stark praised their arguments as “compelling and strongly supported in both fact and law.”
“Stick a fork in it, Binance, you’re done,” he added.