Binance CEO Changpeng "CZ" Zhao and the cryptocurrency exchange itself have jointly filed a motion to dismiss the lawsuit brought against them by the U.S. Securities and Exchange Commission (SEC).
In a September 21 filing with the U.S. District Court for the District of Columbia, both Binance Holdings and Zhao contended that the SEC had exceeded its authority in the lawsuit.
In the 60-page petition, the legal representatives for Binance and Zhao accused the SEC of failing to provide clear guidelines for the cryptocurrency sector before initiating the lawsuit against the crypto exchange. As a result, they argued that the SEC was attempting to retroactively impose its regulatory authority over the crypto industry.
“In attempting to claim regulatory power over the crypto industry, the SEC distorts the text of the securities laws—reading the word ‘contract’ out of the statutory phrase ‘investment contract’,” reads the filing. “The SEC also seeks to enlarge its jurisdiction globally to include transactions on foreign cryptocurrency platforms, defying Supreme Court precedent holding that the agency’s regulatory authority ends at the U.S. border.”
The petition further stated that “the SEC pursues these novel theories retroactively, seeking to impose liability for sales of crypto assets that occurred as far back as July 2017,” before it actually provided any public guidance concerning digital assets.
As the SEC lacks authority to do this, Binance Holdings Limited and Zhao seek to dismiss the complaint.
The list of defendants also includes BAM Trading Services, the American subsidiary of the company, which is operating the Binance.US exchange.
“The SEC has distorted the securities laws and is attempting to seize regulatory power over the crypto industry," a spokesperson for Binance told Decrypt. "The SEC has no legitimate authority over crypto exchanges, and we have therefore asked the Court to dismiss the SEC’s claims in their entirety."
SEC vs Binance
The SEC initiated legal action against Binance and its affiliates in June, alleging that Binance was offering the sale of unregistered securities and operating unlawfully in the United States.
In its initial complaint, the SEC also alleged billions of dollars of customer funds “were commingled in an account” that belonged to Merit Peak, an entity controlled by Zhao. A day after the lawsuit was filed, the SEC sought an emergency order freezing Binance US’s assets to ensure customer funds’ safety.
The SEC stepped up pressure on Binance in recent weeks, accusing the crypto exchange of a “lack of transparency.” The move came in the wake of a deal that was struck between Binance.US and the SEC, preventing a freeze in exchange for greater transparency and oversight. A stipulation of the deal included that Zhao or any entities he owns or controls don’t have access to the funds.
Additionally, a district judge approved earlier this month the SEC’s motion to unseal certain documents in its lawsuit against Binance.US
The ongoing regulatory actions have had a substantial impact on trading activity at Binance.US, with daily trading volumes plummeting by more than 98% since September 2022.
On September 13, a new round of layoffs at Binance.US saw the exchange shed around a third of its workforce, accompanied by the departure of its president and CEO, Brian Shroder.