Court Transcripts of SEC v Binance Holdings, Incetc. have already begun to emerge, showing that arguments central to the crypto space are now being actively debated in US courts.
U.S. District Judge Amy Berman Jackson is presiding over the case between Binance, the world’s largest cryptocurrency exchange, and the U.S. Securities and Exchange Commission (SEC), suing the exchange for large-scale securities fraud violations.
The SEC accused Binance and its founder, Changpeng Zhao, of “weaving an extensive web of deceit” through alleged market manipulation and cheating of regulators, shareholders and customers.
Yesterday’s hearing centered on the SEC seeking a temporary asset freeze and the repatriation of billions of dollars, alleging investor funds are at risk.
Questions from the SEC Fields Court
Judge Jackson is known for her meticulous handling of high-profile public corruption cases in recent years, including the prosecution of longtime Donald Trump advisers Paul Manafort and Roger Stone.
Her questioning of both parties in the Binance case suggested skepticism towards the arguments of both parties. She questioned the SEC’s approach of using an enforcement action rather than a rule-making process to establish national policies for regulating crypto-assets.
In response, the SEC pushed for the validity of its approach, citing longstanding rules and the need to act when laws are broken. “Because it’s the law, Your Honor,” replied SEC counsel Matthew Scarlato, pointing to the existing Howey test used to determine what constitutes a security.
In particular, Judge Jackson argued against the SEC’s distinction between “crypto-assets” and “crypto-asset securities,” the latter of which the SEC says meets the conditions set forth in the Howey test. However, when pressed to answer whether that would make simple “crypto assets” goods, the plaintiff objected, saying, “We’re not taking a position at this point.”
Binance under fire
Judge Jackson also opposed Binance’s defense, which alluded to a lack of regulatory clarity in the crypto industry. She questioned the relevance of this argument in court, stressing that such cases may be more suited to Congress than the judiciary.
In addition, she expressed concern about the alleged offshore transfers and the complex ownership structure of the entities that own BAM Trading, Binance’s US subsidiary:
“The government has said at this point that they have not seen evidence of offshore transfers from BAM Trading itself. But we have significant evidence of offshore transfers and we have the issue of the ownership of the individual defendants of the entities that own BAM Management, the parent company of BAM Trading. So there’s a lot of layers going on here and a lot of onions to peel to figure out who’s doing what.”
Significantly, Judge Jackson summarily rejected the argument that Binance could have been caught off guard, pointing not only to the Wells Notice the exchange received, but also to the public comments made by CEO Changpeng Zhao himself.
“Some of your claims claim to be shocked that the SEC thinks you trade securities and took this step. And part of the astonishment expressed in the pleas rang a little hollow in light of Defendant Zhao’s statements over the years, the fact that the SEC banned Binance from doing business in the United States in 2019. ”
The judge concluded her point by telling the defense, “You can quibble with the strength of the evidence … I probably don’t need much exaggeration on how shocking this is, and I probably don’t need to use the word ‘draconian’.” to belong. ‘ not anymore.”
As the crypto industry matures, the results of this watershed case will be closely watched by industry players, regulators and investors around the world.