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The Securities and Exchange Commission (SEC) insists it will see Binance in court, Congress attempts to reduce the SEC chairman’s salary to $1, and a US government bill seeks to blacklist Tether.
The SEC has filed a response opposing an attempt by Binance to dismiss all charges against itself and CEO Changpeng Zhao.
The filing begins with a quote from Samuel Lim, former chief compliance officer at Binance.
According to private messages sent by Lim and obtained by the SEC, Lim once told a colleague that Binance was “operating as a fking unlicensed securities exchange in the USA bro.”
In this quote, the SEC writes that Lim “crudely but succinctly summed up this case. He was right.”
In total, Zhao and three Binance entities have been issued 13 charges, including selling and offering unregistered securities, misleading investors and engaging in market manipulation.
‘Tortured’ interpretation of law
In its latest filing, the SEC writes that Binance's defence to date has rested on efforts to “dismantle” decades of precedent and carve out an exemption for crypto-assets from US securities laws.
“In its place, defendants would install a rigid framework that turns entirely on contract law and the form transactions take,” said the SEC.
“No court has adopted defendants’ tortured interpretation of the law. To the contrary, courts have consistently rejected it, and this court should as well.”
Citing SEC v W. J. Howey, the regulator argues that US securities laws are “capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
The SEC also takes issue with Binance’s attempt to “insert new requirements” into the Howey test of what constitutes a security.
For example, Binance has argued that for a crypto-asset to be a security, its offer and sale requires a formal “contractual arrangement”.
And “not just any contract”, Binance has argued; such contracts must be “forward-looking” and “legally enforceable”.
In response, the regulator said the language of SEC v W. J. Howey is clear. Under US securities law, an “investment contract” requires only an “investment of money” with the “reasonable expectation” of profits derived from the efforts of others.
“The defendants’ arguments elevate form over substance and seek to turn the federal securities laws into matters of contract law in contravention of decades of well-established law,” writes the SEC.
“Critically, the defendants do not cite one case holding that these nebulous requirements are part of the analysis.”
SEC’s personal jurisdiction over Zhao
Towards the end of the filing, the SEC responds to arguments from Zhao that he should be excluded due to his lack of contact with the Binance entities in the complaint.
The SEC responds that, though Zhao was not and is not the CEO of Binance US, it was Zhao who devised the “illegal scheme” to profit from US investors while evading US law.
This was done by creating, in 2019, a US-based holding company to manage a new US-based exchange, but both of these apparently independent entities were still “secretly” run by Zhao.
“In executing this plan, Zhao admitted that his ‘goal’ was ‘to reduce the losses to ourselves, and to make the US regulatory authorities not trouble us’,” writes the SEC.
US lawmakers attempt to defund SEC
On Capitol Hill, the SEC's efforts to enforce securities laws against crypto firms have not been warmly received by certain legislators.
This week, Representative Tom Emmer (R-MN) introduced an amendment to the 2024 House appropriations bill to choke off funds to the SEC.
"My amendment prohibits the SEC from using funds for enforcement activities related to digital asset transactions until Congress passes legislation that gives the SEC jurisdiction over this asset class," said Emmer.
"This will keep chair Gensler — who has proven himself to be ineffective and incompetent — in check while Congress continues working to give this industry a chance to grow and develop right here in the US."
Similarly, Representatives Tim Burchett (R-TN) and Ralph Norman (R-SC) submitted an amendment to the House appropriations bill to reduce the salary of SEC chair Gary Gensler to $1.
Both amendments were adopted by voice vote, but will also have to pass in the Senate if they are to be enacted.
The amendments are likely to fail in the upper house, where members of the Senate Banking Committee have pushed for SEC enforcement against crypto firms and have recently called for criminal charges against Binance and Tether.
Bill to prohibit US government use of ‘adversarial’ blockchains
Finally, another US bill has been introduced to the House of Representatives, with the aim of preventing government officials from using “adversarial” blockchains.
Officially titled the Creating Legal Accountability for Rogue Innovators and Technology Act of 2023 (CLARITY Act), the bill takes aim mainly at Chinese blockchain developers, but also at stablecoin issuer Tether.
As per the bill, heads of US government agencies would be prohibited from entering into contracts to use a foreign adversarial blockchain network for any purpose.
This would also apply to any service that has a “substantial or essential component” supplied by a foreign adversarial blockchain developer.
The bill lists five prohibited blockchain network providers, including iFinex — parent company of Tether and Bitfinex — and Red Date Technology, developer of China’s central bank digital currency (CBDC).
Once again, the bill is unlikely to pass given its lack of committee support. It was introduced by Representatives Zach Nunn (R-IW) and Abigail Spanberger (D-VA).
