The U.S. Supreme Court dealt a blow to Binance, the world’s largest cryptocurrency exchange, on Monday by refusing to hear its appeal in a class action lawsuit brought by investors. The investors allege that Binance illegally sold unregistered tokens that subsequently plummeted in value.
The court’s decision leaves in place a March 2024 ruling by the 2nd U.S. Circuit Court of Appeals in Manhattan, which determined that U.S. securities laws could apply to Binance despite the exchange not being a U.S.-based company. The 2nd Circuit reasoned that because token purchases became irrevocable in the United States once payment was processed, domestic laws had jurisdiction. The court also cited Binance’s use of Amazon’s domestic servers as further justification for its ruling.
The lawsuit, filed by investors who purchased ELF, EOS, FUN, ICX, OMG, QSP, and TRX tokens through Binance starting in 2017, claims the exchange failed to disclose the “significant risks” associated with these tokens. The investors are seeking to recover their initial investments.
Binance, founded in China, has long maintained that it should not be subject to U.S. securities regulations. The company’s CEO, Richard Teng, stated in December that Binance has yet to determine its official headquarters, a decision that has been pending for years.
In its appeal to the Supreme Court, Binance argued that the 2nd Circuit misapplied the 2010 Morrison v. National Australia Bank decision, which limited the extraterritorial reach of U.S. securities laws. Binance contended that the 2nd Circuit’s ruling effectively revived a rejected legal standard allowing for the application of domestic securities laws based on conduct underlying a transaction or the transaction’s effects within the United States.
Binance further asserted that its appeal raised a crucial question with global implications for financial markets: whether and under what circumstances U.S. securities laws apply to foreign trading platforms like Binance.com.
This case is separate from Binance’s November 2023 guilty plea and over $4.3 billion penalty for violations of federal anti-money laundering and sanctions laws.
