SEC Places Heavier Scrutiny on Binance's Token Listing, Trading Process in Proposed Amended Complaint

• The U.S. Securities and Exchange Commission filed a proposed amended complaint against Binance.
• The SEC mostly won against Binance's motion to dismiss its initial lawsuit, but a few questions about certain tokens remained unanswered in the order on a motion to dismiss.
• The SEC also addressed two issues it lost – secondary BNB sales and Binance Simple Earn – in its proposed filing.

The U.S. Securities and Exchange Commission (SEC) wants to take another whack at its lawsuit against crypto exchange Binance, filing a proposed amended complaint Thursday night a few months after the federal judge overseeing the case allowed most of the regulator's charges to survive a motion to dismiss.

The SEC argued its proposed amended complaint addressed some of the judge's concerns in dismissing parts of its initial lawsuit – namely around ongoing BNB sales and Binance's Simple Earn product – and bolstered other charges that the judge did not fully address in her ruling, specifically around 10 digital assets the SEC used as examples of Binance operating as an unregistered securities purveyor.

"The MTD Order dismissed these claims based on insufficient factual allegations to meet the Howey test, as opposed to a defective legal theory," the SEC filing said.

The SEC first sued Binance in June 2023, alleging the exchange was operating as an unregistered broker, clearinghouse and trading venue, offered unregistered securities through BNB and the BUSD stablecoin, as well as its staking service. Binance, Binance.US (otherwise known as BAM Trading) and Binance executives moved to dismiss the lawsuit. Judge Amy Berman Jackson, in a June 2024 ruling, dismissed charges tied to Binance's Simple Earn product and secondary BNB sales, but allowed most of the SEC's charges to proceed.

However, in a July 2024 hearing, attorneys went back-and-forth over whether the judge's ruling meant that 10 cryptocurrencies the SEC alleged were also sold as unregistered securities were still part of the case.

"The PAC also bolsters allegations not expressly ruled upon concerning certain offers and sales of BNB and the Ten Crypto Assets to address Defendants’ prior dismissal arguments and Defendants’ anticipated argument that the MTD Order’s reasoning as to BNB secondary sales should apply to allegations concerning the Ten Crypto Assets," Thursday's SEC filing said.

Granting the motion to file an amended complaint won't unduly harm Binance and its affiliated persons and entities, given they'll still have a chance to respond and have been aware of the allegations since last June, the SEC said (it filed the proposed amended complaint at a court-ordered deadline; Binance has until Oct. 11 to oppose the motion).

BNB, tokens focus

A redline version of the proposed amended complaint walks through the differences, showing far more detail on the SEC's allegations about Binance's listing of various tokens – including BNB, its native coin – and how the regulator thinks the company promotes investments in these tokens.

One line adds that in addition to some cryptocurrencies being native to a specific blockchain, others may be built on top of blockchains. Another line clarified that proof-of-stake networks still reward validators like proof-of-work networks.

The proposed filing also adds "initial exchange offerings" to its section on initial coin offerings.

One substantial addition alleges that Binance is "an integral part of the markets for crypto assets, including those that are offered and sold as securities, and Binance fills these markets with information republishing and amplifying the issuer and promoter statements and activity."

The filing adds other paragraphs focusing on Binance's own role in allegedly promoting digital assets it lists and trades.

The filing emphasizes the SEC's allegation that BNB is a token that is offered and sold as a security, and the exchange's customers, employees and investors share this expectation.

"Binance has offered and sold BNB as an 'exchange token,' marketing it to investors as an investment in the success of the Binance.com Platform and touting the potential returns that investors could expect from a potential increased demand and price for BNB as the platform grew," the filing said.

Binance's BNB burns and its support of projects that use BNB are also designed to help the token increase in value, the SEC alleged.

Binance paid U.S. employees, including BAM Trading (Binance.US) executives, in BNB, the SEC alleged.

"In internal Binance town halls, Zhao frequently touted Binance’s ETOP [employee token option plan] as essentially equivalent to employee stock options – i.e., as a direct way for employees to share in any profits from the growth of the Binance.com Platform and the Binance enterprise," the filing alleged.

The filing goes into similar additional detail around Binance Simple Earn and the 10 digital assets – SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI – it alleges were sold as unregistered securities on the Binance platform.

"As part of their business practices and provision of intermediary services, Binance and BAM Trading promote the Ten Crypto Assets as attractive investments for their customers, including by amplifying and reinforcing the promotional statements and activity of the crypto asset issuers and promoters," the filing said.

Binance and the issuers of the tokens provide "selective information" to encourage Binance's customers to invest in the tokens, the SEC alleged, using screenshots of Binance's Solana page as an example.

"When Binance and BAM Trading approve a listing of a crypto asset, they typically negotiate and enter into agreements with the crypto asset issuers that impose various requirements on the issuer to incentivize trading by customers of the Binance Platforms," the filing said.

Other pages on Binance's website, like its explanation of the term "tokenomics," also refers to tokens' market value and "equate the purchase and sale of crypto assets to trading in the traditional securities markets," the filing said.

Token issuers have similarly touted their teams' efforts, the SEC alleged.

Crypto asset securities

In its proposed amended complaint motion, the SEC said it was doing away with the phrase "crypto asset securities," saying in a footnote that the agency "is not referring to the crypto asset itself as the security."

Rather, the SEC said it "regrets any confusion it may have invited" by using the phrase to refer to "the full set of contracts, expectations and understandings centered on the sales and distributions" of whichever digital assets were at question.

"As the Court explained, the crypto asset is the subject of the investment contract. Defendants appear to argue that, even if the Ten Crypto Assets were offered and sold as securities during the ICOs, they do not remain securities into perpetuity. The SEC is not advancing this argument," the footnote said. "The SEC’s allegations with respect to the Ten Crypto Assets at issue in secondary markets are that that their promotions and economic realities have not changed in any meaningful way under Howey, such that they continue to be offered and sold as investment contracts."

In the proposed amended complaint itself, the SEC replaced "crypto asset securities" with "crypto assets that were offered and sold as securities" at various references.