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A court hearing on Monday focused on the U.S. Securities and Exchange Commission's (SEC) ongoing charges against Binance, Reuters reported on January 22.
Binance attorney Matthew Gregory argued during the hearing that the SEC has not established clear regulations for the cryptocurrency industry. He said:
“So far, the SEC has been on both sides when it comes to crypto tokens… It's telling the industry (to) come and register, while simultaneously holding the door shut with the other hand and preventing any viable path to achieving this.
SEC lawyers countered that this test alone, implied Howey test, is intended to be applied to financial products in a flexible manner. SEC lawyers said there was “no bright line” to distinguish securities from non-securities.
Binance also asked Judge Amy Berman Jackson, who is presiding over the case, to dismiss the SEC's charges against it and related parties.
The SEC initially charged Binance and its former CEO, Changpeng Zhao, in June 2023. It alleged that the company operated domestic securities exchanges and other unregistered services, misrepresented Binance.US trading controls and oversight. and had engaged in unregistered offers and sales of securities. .
Binance's court date follows a January 17 hearing regarding similar SEC allegations against competitor Coinbase. Coinbase also argued for the dismissal.
The judge was very critical of Binance
Various accounts from the current hearing suggest that Judge Jackson was highly critical of Binance's arguments throughout his testimony.
Reuters said Judge Jackson rejected an argument in which Binance's lawyers relied on the major issues doctrine. This argument suggests that the SEC cannot take certain regulatory actions without Congressional approval.
Fortune reporter Leo Schwartz, meanwhile, says that Judge Jackson balked at Binance's contention that securities offerings must involve contracts. Judge Jackson joked, “You're a little too cute” and responded that the Howey test includes broader language. She then criticized an analogy in which Binance claimed that baseball cards, which are not generally considered securities, shared some similarities with the products currently under discussion.
According to crypto lawyer Jeremy Hogan, the judge was also critical of Binance's fair notice defense. This argument suggests that the SEC should have informed Binance that it had committed securities violations before filing suit.
The judge also addressed the SEC's arguments
Judge Jackson also questioned the SEC closely, according to another report of the procedure by Blockworks reporter Casey Wagner.
In its initial set of charges, the SEC argued that Binance's own cryptocurrencies, including BNB and its largely defunct stablecoin Binance USD (BUSD), were securities. The SEC also argued that several other tokens managed but not issued by Binance are also securities, including Cardano (ADA), Polygon (MATIC), and Solana (SOL).
Jackson criticized these arguments, as she stated:
“If it’s so obvious that these are securities, where has the (SEC) gone?” And why is it irrelevant that the SEC took the opposite position or adopted no conditions for so many years? »
Later, an SEC lawyer responded that the Howey test makes clear that regulators do not need to contact parties to remind them of possible violations.
Judge Jackson also expressed concerns about the many third-party tokens that Binance manages but is not responsible for issuing them. She said she was “concerned about the discovery and numerous lawsuits” that each named asset could generate, noting that the issuers are not parties to the lawsuit at this time.
Furthermore, the SEC's assertions are based in part on the affirmation that many ongoing efforts involving the affected crypto assets come with a “reasonable expectation of profit,” which satisfies part of the Howey Test. However, it remains to be seen how the SEC will argue its case in future proceedings.
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