A Legal Turning Point

A federal appeals court shook the legal landscape last week by pushing forward an aspiring class-action lawsuit seeking to hold Binance accountable for enabling U.S. crypto investors to trade unregistered securities through certain cryptocurrencies. While the ruling refrains from labeling the tokens as securities, its implications ripple far and wide in the realm of securities law.

Significance Unveiled

Binance’s longstanding stance as a borderless entity failed to sway the judicial panel. The judges underscored the enduring application of domestic securities regulations to activities on non-U.S.-based exchanges, a precedent that carries weighty repercussions, notably in the U.S. Securities and Exchange Commission’s legal battle with the platform. Notably, this appellate ruling, distinct from a lower court judgment, weaves a stronger thread of legal precedent.

The Legal Verdict

The judicial edict last week unfurled a pivotal principle: a crypto exchange, despite disavowing U.S. roots, can still be roped within the ambit of U.S. laws if sufficient connections to the U.S. can be established. The ruling resurrected a class action lawsuit waged against Binance, as the court found the investors had ample grounds to litigate against the platform.

The ruling pivoted around two key pillars. One entailed timeliness, while the other delved into the labyrinthine term of extraterritoriality. Judges Leval, Chin, and Nathan leaned on the Morrison v. National Australia Bank precedent to pinpoint the core factors – the locus of trades, payment channels, and terms of service adherence – where U.S.-based investors veered their transactions, effectively grounding the lawsuit within the precincts of various U.S. states.

“First, Plaintiffs have adequately alleged that their claims involved domestic transactions because they became irrevocable within the United States and are therefore subject to our securities laws,” the judges articulated. The ruling rebuffed Binance’s bid to cloak itself as a decentralized exchange shielded from U.S. jurisdiction, citing the plaintiffs’ robust assertion that token orders were consummated within U.S. borders, leveraging Binance’s servers housed in California, including those of Amazon Web Services.

The court further validated the plaintiffs’ contention that the lawsuit was lodged within the statute of limitations, a timeline commencing from the token purchase inception.

The SEC promptly interjected the ruling as ammunition in its ongoing legal tussle with Binance, countering the exchange’s dismissal plea supported by excerpts from a prior court case.

Tuesday

• 10:00 UTC (10:00 a.m. GMT) Attorneys representing the Crypto Open Patent Alliance commenced closing arguments in their case against Craig Wright.

Friday

• The Department of Justice will file its own briefs on Sam Bankman-Fried’s sentencing.

(The Wall Street Journal) Binance Head of Financial Crime Compliance Tigran Gambaryan and regional manager for Africa Nadeem Anjarwalla encountered detainment by Nigerian authorities, ostensibly linking Binance and the wider crypto sphere to a local currency turmoil.