On Monday, the SEC filed a lawsuit against Binance and CEO Changpeng Zhao, as well as BAM Trading and BAM Management, for lying to regulators about operations, among other charges.
While the suit raised eyebrows across the industry, what stood out to TechCrunch+ was the agency’s direct stance on a handful of crypto assets being securities. That’s something crypto community members have argued against in the past.
The total filing was 136 pages long and carried a lot of information. So we dove deep into the securities section of the document ourselves to get an understanding of what cryptocurrencies the SEC views as securities and what this could mean for the ecosystem.
SEC’s lawsuit against Binance and CEO Zhao was a matter of ‘when, not if,’ industry players say
In the filing, the SEC alleges that Binance and BAM Trading violated federal securities laws by “illegally conducting unregistered offers and sales of securities to U.S. investors” through BNB, BUSD, its “BNB Vault” program and “Simple Earn” program, as well as BAM Trading’s staking-as-a-service program.
Since its inception, BNB and BUSD has “been offered and sold as an investment contract and, therefore, as a security,” the filing stated. This stance of crypto assets and programs being offered as an “investment contract” is repeated throughout the filing for each crypto asset mentioned as the de facto argument for what qualifies as securities.
Aside from Binance-related tokens, the crypto assets traded on Binance.com and Binance.US include assets that were “offered and sold as securities,” like Solana’s SOL, Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL, Cosmos’ ATOM, Sandbox’s SAND, Decentraland’s MANA, Algorand’s ALGO, Axie Infinity’s AXS and Coti’s COTI tokens. What made the agency highlight these cryptocurrencies, and not the hundreds of others tradable assets on the exchange, is unclear.
Regardless, the SEC filing allocated 53 pages worth of context, diving into each of the 12 crypto assets mentioned above.
As for its BNB Vault and Simple Earn programs, from October 2019 to October 2022, anywhere from 3,200 to 16,500 U.S. investors participated in its Simple Earn investment plan, and over 1,400 investors participated in the BNB Vault program, according to the filing.
This highlights the fact that the SEC has, once again, taken the stance that most cryptocurrencies (aside from Bitcoin) are securities.
Are cryptocurrencies commodities or securities? Depends on which US agency you ask
Per the March CFTC’s filing against Binance, the regulator said certain digital assets, including bitcoin, ether, litecoin and “at least two fiat-backed stablecoins,” tether and the Binance USD, “as well as other virtual currencies as alleged herein, are ‘commodities.’”
So the seesaw game of figuring out which crypto assets are securities or commodities stands. But cryptocurrencies are becoming increasingly defined as securities as the SEC continues to regulate by enforcement.
“Similar to previous cases, the SEC concludes on its own that assets listed on Binance are securities in the same way the CFTC has concluded that similar assets are commodities,” Jeffrey Blockinger, chief counsel at decentralized exchange Vertex Protocol, told TechCrunch+.
As the SEC continues to double down on its stance, investors and platforms alike should consider adjusting their personal beliefs to align with the agencies, considering the crackdown on these tokens is going to continue to happen — whether they like it or not.
“I expect this competitive regulatory battle to ultimately be decided by the courts, which will be a tremendous waste of resources for both the agencies and the industry,” Blockinger said. “It is disappointing to see such a dramatic breakdown in U.S. regulation which has historically been the regulatory leader of the world.”
The existing crypto financial services ecosystem is being replaced by one regulated under the federal securities laws, Aaron Kaplan, co-CEO and co-founder of Prometheum Inc., told TechCrunch+. For reference, Prometheum is the parent company behind a SEC and FINRA-registered digital asset securities trading platform.
The current enforcement action against Binance is “another step in the transition of crypto trading and custody to properly licensed entities under the federal securities laws,” Kaplan said. “Digital assets are regulated financial instruments and often virtual currency exchanges [trying] to evade rules and regulations by either choosing lax jurisdictions from which to base their business or operating under improper licenses that did not and do not properly protect their customers.”
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