SEC Alleges BNB and 10 Other Tokens Constitute Securities Based on Howey Test Criteria in Secondary Markets

Amidst legal challenges, the United States Securities and Exchange Commission (SEC) has contested the motion to dismiss the lawsuit it has filed against the cryptocurrency platform Binance, its American division Binance.US, and the exchange’s ex-CEO, Changpeng Zhao.

Allegations by the SEC point to the exchange’s operation of an illicit securities exchange, involving its proprietary token BNB, along with a cadre of other digital currencies.

Highlights from the Court Documents

The foundation of the case rests on the Howey Test, a legal framework to ascertain the status of an investment as a security. This involves checking for monetary investment, joint venture involvement, and expectations of profits predominantly from the work of others.

According to the SEC, Binance’s circumstances meet all the necessary Howey Test conditions, arguing that token holders were led to associate their investment value with the overall success of Binance’s platform and anticipate profits.

The agency elaborated in its legal submission that the idea of secondary market transactions being exempt from securities regulation is invalid, citing the relevance of the Howey Test to such trades.

In response to Judge Amy Berman Jackson’s scrutiny of the initial arguments, the SEC modified its complaint earlier this year. Yet, after Binance and Zhao moved to dismiss this amended version on November 4, asserting the absence of substantial evidence, the SEC still persists in its pursuit. In its latest court submission, the SEC insists on categorizing BNB and an additional ten digital assets as securities, mentioning tokens like Solana (SOL) and Cardano (ADA) among others.

Even as crypto sectors critique the SEC for purportedly overreaching, the agency has rebutted these claims in its submission, asserting, “The dire predictions of sweeping regulatory encroachment on the industry have not come to pass. Yet, that too becomes a point of complaint.”

Views from Industry Insiders

However, resonance with the SEC’s actions isn’t unanimous. Coinbase Chief Legal Officer, Paul Grewal, reproached the SEC for its erratic approach to regulation, notably questioning via Twitter why cryptocurrencies like Ethereum (ETH) and Bitcoin (BTC) have not been deemed securities by the agency.

Ripple’s chief legal advisor, Stuart Alderoty, also voiced his dissent, targeting outgoing SEC Chairman Gary Gensler. With Donald Trump set to replace Gensler with pro-crypto Paul Atkins following his victory in the presidential election, Alderoty accused Gensler of hastily trying to file a comprehensive 81-page brief before his tenure ends, branding it as mere rehashed ‘deficient arguments.’

John Deaton, a cryptocurrency lawyer, shared his objections, advising the SEC through a tweet to reconsider the original Howey case decision, stressing that the value and speculative nature of the asset are not paramount.