Binance and Coinbase SEC Lawsuit |

US SEC sues cryptocurrency companies

In early June 2011, the U.S. Securities and Exchange Commission (SEC) sued Coinbase and Binance US, major overseas crypto asset (virtual currency) exchanges, one after another on suspicion of violating securities laws.

Coinbase and Binance have challenged the SEC, calling for clear rules rather than asserting jurisdiction through forced enforcement. The lawsuit has gone to court and is expected to take several years.

The lawsuit also expands the overall number of cryptocurrencies designated as securities by the SEC. This could put other US-registered exchanges at risk of regulatory action, including Kraken, Gemini, Crypto.com and Okcoin.

In fact, the US investment app “Robinhood” announced the delisting of virtual currencies such as Solana (SOL) and Polygon (MATIC) on the 9th, and the impact is spreading.

In this article, we will take a look at the state of cryptocurrency regulation by the SEC, their arguments, and the views of industry insiders.

connection:Robinhood to delist Solana Polygon Ada

Lawsuit Against Coinbase

On June 6, the U.S. SEC sued major cryptocurrency exchange Coinbase for violating U.S. securities laws. The SEC requires Coinbase to comply with US securities law registration requirements, disclose information, and ensure investor protection.

In a complaint filed in the U.S. District Court for the Southern District of New York, the SEC said Coinbase made billions of dollars in brokering the buying and selling of cryptocurrencies while evading regulatory structures designed to protect investors. pointed out that

The SEC also argued that these activities fall within securities laws because Coinbase offers cryptocurrencies, including cryptocurrency securities. We outlined the securitization of 13 different tokens, including Solana (SOL), Ada (ADA), and Polygon (MATIC).

The SEC also considers Coinbase’s “staking-as-a-service” to be an offering of securities. “The service will benefit users through its Proof of Stake (PoS) mechanism and Coinbase’s commitment,” it explains.

In response to the lawsuit, Coinbase CEO Brian Armstrong took to Twitter to take to Twitter to take a stand against the lawsuit. Armstrong criticized the lack of clear rules for the digital asset industry and the SEC’s emphasis on mandatory enforcement. “I am proud to represent the industry in seeking clarity in court about cryptocurrency rules,” he said.

Armstrong also said that Coinbase will continue to operate, including staking, “until fair and transparent trading rules are established and a legal system that applies equally” is established. Coinbase has so far provided clear guidance from the SEC on how securities laws should apply to the cryptocurrency industry and which digital assets should be treated as securities or as commodities. I pointed out no.

In a subsequent development, the U.S. Court of Appeals on June 6 ordered the SEC to submit a response to Coinbase’s petition for cryptocurrency rulemaking within a week.

connection:U.S. Court Orders SEC to Respond to Coinbase “Rulemaking Petition” Within One Week

Lawsuit Against Binance

The U.S. SEC has sued major cryptocurrency exchange Binance, its U.S. subsidiary, Binance.US, its affiliates, and CEO Changpong Zhao (CZ) for violating U.S. securities laws on June 5. bottom.

A complaint filed by the SEC in the US District Court for the District of Columbia alleges that Binance.US has evaded regulatory structures designed to protect investors, similar to the Coinbase lawsuit. We outlined the securitization of 12 types of tokens, including the proprietary token BNB and the stablecoin BUSD.

In addition, a total of 13 lawsuits have been filed, pointing out suspicions such as lack of information disclosure, wash trade, which is illegal manipulation of trading volume, and misappropriation of customer assets that are not properly segregated and managed.

connection:Bitcoin plunges to $25,000 as SEC sues Binance

SEC requires Binance to comply with registration requirements and disclose information in accordance with US securities laws. In addition to these, they are required to “monitor” and take appropriate measures to prevent market fraud and manipulation, and to take appropriate measures to avoid “conflict of interest” situations.

Binance, on the other hand, has denied the SEC’s allegations in a public statement.

Binance also criticized the unilateral labeling of certain tokens and services as securities, saying that it “is one of a series of examples in which it has chosen to regulate through inconsiderate enforcement and litigation.”

The SEC also asked the court to freeze the assets of Binance.US. He demanded that all fiat and cryptocurrencies held by the company or traded by its users be transferred to the United States.

connection:Binance US Rebuts SEC Allegations, Files Court Documents

In response, a lawyer for BAM, the operator of Binance.US, said the company “stores customers’ fiat currency in segregated accounts managed with banking partners, segregated from any other company’s funds. Yes.” He confirmed that Mr. CZ is the owner of BAM’s bank account, but said Mr. CZ does not have signing authority over the account.

The SEC hearing on the Binance US asset freeze request is scheduled to be held on the 13th.

SEC designated “virtual currency offered as securities”

Below is a list of cryptocurrencies that the SEC deemed securities in their respective complaints for Coinbase and Binance. The SEC has provided a securitization analysis for each project.

subject to litigation Tokens deemed unregistered securities

Coinbase	Chillies (CHZ), Internet Computer (ICP), Near (NEAR), Dash (DASH), NEXO, Voyager (VGX), Flow (FLOW), Solana (SOL), Ada (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox (SAND), Mana (MANA), Algorand (ALGO), Axie Infinity (AXS)
Binance.US	COTI, BNB, BUSD, Cosmos (ATOM), Solana (SOL), Ada (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Mana (MANA), Algorand (ALGO) , Axie Infinity (AXS)

Howey test

Cryptocurrency market participants such as Coinbase and Binance did not announce in advance the rules specified by the US SEC regarding the criteria for judging what kind of virtual currency is a security, but on the other hand, they have their own It has been criticized for its continuous enforcement actions.

However, the SEC has stated that the “Howey test” will be the standard for treating cryptocurrencies as securities, and in the complaint against Coinbase and Binance, the SEC explained in detail the characteristics of each of the cryptocurrencies listed as targets. .

The “Howey Test” was born in 1946 as a standard for determining the definition of a security as a result of the “SEC vs. WJ Howey Co.” trial. It is used in determining whether it is an investment contract or security. The Howey test consists of four elements:

• Investment Contract: Money or property is invested.
• Common Enterprise: Funds are raised from multiple investors and a common business is run through their pooled resources.
• Profit Expectation: The investor expects to profit from the investment.
• Efforts of Others: Benefits are generated through the efforts of other people or companies.

Note that the Howey test is judged on a case-by-case basis and may qualify as a security even if not all factors apply.

Specifically, the outline of the virtual currency “Polygon (MATIC)” presented by the SEC in the complaint is compared with the Howey test, and the following points can be obtained.

• Investment Agreement: Polygon and its founders have raised funds through the MATIC token sale and used it to develop and grow the network.
• Common company: Polygon raises money from multiple investors and uses the money to expand its network. This indicates that investment activity is linked to a common enterprise.
• Profit Expectations: Investors expect to profit from Polygon’s efforts and are believed to be buying tokens in anticipation of MATIC’s price increase.
• The Efforts of Others: The profits that investors make are largely dependent on the efforts of Polygon and its founders to develop and expand the network.

The SEC argues that MATIC should be treated as a security because it meets all four Howey tests. He also outlined the methodology adopted by MATIC called “EIP-1559: Trading Fee Burning.” This probably falls under the elements of “expectation of profit” and “efforts of others.”

Opinion of Chairman Gary Gensler

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler was appointed by President Biden in February 2021 and has been working to strengthen regulation of the cryptocurrency industry since taking office in April of the same year.

According to data compiled by consultancy Cornerstone Research and information obtained from the SEC’s official website, the regulator has already filed more than 130 cryptocurrency-related lawsuits, including some specific tokens. It also includes those explicitly stated to be treated as

Gensler has consistently stated that all cryptocurrencies other than Bitcoin are securities under the jurisdiction of the SEC. This is a theory that he has continued even before he became chairman of the SEC.

Before entering public office, Mr. Gensler worked for financial giant Goldman Sachs. He has held a variety of positions, including being a partner in the M&A department and being responsible for fixed income and foreign exchange trading in Asia. As such, he has extensive knowledge and experience in financial markets.

Gensler, who served as chairman of the Commodity Futures Trading Commission (CFTC) from 2009 to 2014, then from 2018 to 2021 worked at the Massachusetts Institute of Technology’s (MIT) School of Business, known as MIT Sloan’s Digital Currency Initiative. As a senior advisor, he has focused on education and research activities related to virtual currency and blockchain.

According to MIT Sloan records, Gensler expressed a positive view of Bitcoin and its underlying blockchain technology.

Gensler also said cryptocurrencies could be a game changer for the financial system and could improve financial inclusion for unbanked people in developing countries.

Regarding his views on Bitcoin’s securitization, Gensler said:

However, Gensler noted that ETH and/or XRP could have been investment contracts or unregistered securities sales at the time of sale.

He also stressed the importance of regulation. Other tokens, including over 1,000 ICOs issued in the past, need to be reviewed for securitization.

In particular, citing the Howey test, it noted that “if an ICO (initial coin offering) is designed to provide ownership to investors, its tokens should be treated as securities and subject to applicable regulations.” are doing.

And it begs the question, “Is it really valid to argue that ‘tokens designed for multi-tiered offerings like SAFT (Simple Contracts for Future Tokens) are not securities’?”

Past Statements as SEC Chairman

The following is a summary of what Mr. Gensler, who is acting as the chairman of the SEC, has shown and what he has said about cryptocurrencies.

date event Quote

March 21	Nomination speech before the US Congress	“Markets and technology are always changing. Our rules must change with it. Financial technology can be a force for good, but only for investors, issuers and the public.” “Only if we continue to leverage the SEC’s core values ​​in the future.”
September 21 :connection	Washington Post interview	The SEC is currently compiling a report on stablecoins under the direction of Treasury Secretary Janet Yellen. He said most cryptocurrencies fit the definition of a security and that cryptocurrency exchanges must be registered with the SEC. He likened the cryptocurrency boom to the 19th-century Wild West and viewed stablecoins as “poker chips.”
May 21 :connection	Testimony before the House Financial Services Committee	He called on Congress to “take steps toward a clear regulatory framework for cryptocurrency exchanges.” “Currently, there are no market regulators surrounding these cryptocurrency exchanges, and as a result there is virtually no protection against fraud or manipulation,” he said.
September 21	Testimony before the Senate Banking, Housing and Cities Committee	“I believe that the SEC, together with the CFTC[U.S. Commodity Futures Trading Commission]and other agencies, can set up stronger oversight and investor protection in the area of ​​crypto finance.”
September 22 :connection	US Senate Committee on Banking, Housing and Urban Affairs Hearings	All cryptocurrencies based on proof-of-stake (PoS) protocols are likely to be securities, he said. Since it was done a few hours after the implementation of a large-scale upgrade “merge” to Ethereum’s PoS, it was noted that Ethereum may also be subject to SEC regulation as a security.
September 22 :connection	Remarks to the Practicing Law Institute	“There is no part of the cryptocurrency market that is not compliant with securities laws. There have been calls in some parts of the cryptocurrency industry for greater ‘guidance’ regarding tokens. I sent it with my voice.”
October 22	Testimony before the Senate Banking, Housing and Cities Committee	To the point that the cryptocurrency market is under the jurisdiction of the SEC, he said, “The SEC’s authority in this area is clear.”
April 23 :connection	Testimony before the House Financial Services Committee	CFTC (Commodity Futures Trading Commission) Chairman Rostin Benham said at a Senate Agriculture Committee hearing in March that he thought Ethereum (ETH) was a commodity, while New York law enforcement officials Claims that Ethereum is a security. When asked about the contradiction, Mr Gensler declined to answer, saying “it depends on the facts and the law”.
June 23 :connection	Speaking on CNBC	“We don’t need more digital currencies,” he said. He claims that fiat currencies such as the US dollar, euro, and yen have already been digitized, and that digital investments can already be made.
June 23 :connection	Speaking at fintech conferences	The SEC has already issued guidelines on what is considered a security, he said. As an example, he cited the SEC staff’s 2019 Framework for Analysis of ‘Investment Contracts’ for Digital Assets. Lawsuits and court rulings settled by the SEC with various companies also shed light on when token offerings and sales are securities.

Future outlook

The U.S. Securities and Exchange Commission (SEC) lawsuit against major cryptocurrency exchanges Coinbase and Binance is expected to take years to resolve. As such, some analysts are optimistic that there will be no major changes for cryptocurrency investors in the short term.

According to Robert Lee, a cryptocurrency analyst at investment information firm PitchBook, cryptocurrency exchanges such as Binance and Coinbase will basically continue to operate while the civil lawsuit goes through court proceedings. It’s about Kathy Wood-led Ark Investment Management fund (ARK Innovation ETF) bought a large amount of Coinbase shares shortly after Coinbase was sued by the SEC.

connection:Ark Invest buys $30 million worth of Coinbase shares on SEC filing date

However, if the SEC makes additional concrete moves in the future, such as deeming other tokens offered on U.S. cryptocurrency exchanges to be securities, U.S. exchanges will consider delisting those tokens. there’s a possibility that. This could lead to trading chaos, Li said.

Meanwhile, JP Morgan has argued that the U.S. Congress should establish a clear framework for how the crypto industry should be regulated and the roles of the SEC and the Commodity Futures Trading Commission (CFTC). There is a need to clarify which cryptocurrencies are classified as securities, rather than individual legal cases.

The ongoing litigation between the SEC and Ripple also lacks this and has taken years to reach a verdict. Until there is a clear classification on security classification, crypto traders will likely continue to migrate outside the US and to decentralized exchanges, and venture capital funding will likely remain weak, he added.

Meanwhile, the U.S. Congress is trying to introduce crypto-specific legislation to tackle the problem. House Financial Services Committee Chairman Patrick McHenry (R-North Carolina) and House Agriculture Committee Chairman Glenn Thompson (R-North Carolina) released draft legislation earlier this month to deliberate on the regulatory framework for cryptocurrencies. announced to

connection:U.S. Congressmen Unveil Bill to Clarify Crypto Regulations

The bill’s purpose is to clarify the gap that exists between CFTC and SEC regulations. It also includes guidance on specific procedures for companies to register with the SEC and requests the SEC to create new rules necessary for the management of cryptocurrencies.

In the Senate, Cynthia Lumis (Republican, Wyoming) and Kirsten Gillibrand (Democrat, New York) are inconsistent after the market turmoil caused by the 2022 collapse of crypto exchange FTX. It seems that they are planning to make amendments to the current virtual currency law and re-enact it.

connection:What is the Responsible Financial Innovation Act (RFIA) drafted by US bipartisan lawmakers?

The post Binance and Coinbase SEC Lawsuit | appeared first on Our Bitcoin News.