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Binance used ‘tortured’ interpretation of law in bid to toss suit, says SEC

November 9, 2023 Coin Telegraph

Binance

The SEC derided Binance’s request to have the regulator’s suit thrown out, claiming the crypto exchange hasn’t correctly applied the law.

Binance’s arguments used in its motion to dismiss a lawsuit from the United States securities regulator relies on an incorrect legal analysis and have no basis in law, the regulator has argued.

In a Nov. 7 court filing the SEC rebuffed Binance’s earlier bid to toss the regulator’s suit saying no court has adopted Binance’s “tortured interpretation of the law.”

The SEC sued Binance in June alleging it, Binance.US and its founder Changpeng “CZ” Zhao sold unregistered securities and failed to register as an exchange in the United States.

Binance argued the SEC failed to introduce crypto guidelines, misinterpreted securities laws and applied them to crypto and called the suit an overstep of its authority.

In its latest rebuttal, the SEC claimed Binance “never complied” with federal securities laws which was “a deliberate choice.”

“Binance’s Chief Compliance Officer crudely but succinctly summed up this case when he admitted that Binance was ‘operating as a fking unlicensed securities exchange in the USA bro.’ He was right.”

It added Binance’s arguments that compared crypto to “supermarket items like oranges [...] are absurd” and claimed the crypto exchange’s crypto sales are investment contracts under the Howey test.

The regulator reiterated its claims the BNB (BNB) initial coin offering violated securities laws and Binance USD (BUSD) along with the yield-bearing staking, Vault and Earn programs are investment contracts.

*Highlighted excerpt of the SEC’s arguments claiming Binance sold unregistered securities from unregistered exchanges in the U.S. Source: CourtListener*

It also rebuffed Binance’s argument that the suit violated the major questions doctrine — a 2022 U.S. Supreme Court ruling saying Congress doesn’t delegate authority to agencies, which other crypto firms have cited in their aim to push back on the SEC’s claimed authority.

The SEC claimed granting Binance’s dismissal request would “dismantle decades of foundational precedent upon which the nation’s securities laws operate” and in its place would be a “rigid framework” that upends the “broad, flexible regime” of the current laws.

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Coinbase disputes SEC’s crypto authority in final bid to toss regulator’s suit

October 25, 2023 Coin Telegraph

Coin Telegraph

Coinbase says the SEC’s definition of an investment contract isn’t in line with U.S. securities laws.

The United States Securities and Exchange Commission overstepped its authority when it classified Coinbase-listed cryptocurrencies as securities, the exchange has argued in its final bid to dismiss a lawsuit by the securities regulator.

In an Oct. 24 filing in a New York District Court, Coinbase chastised the SEC, claiming its definition for what qualifies as a security was too wide and contested that the cryptocurrencies the exchange lists are not under the regulator’s purview.

“The SEC’s authority is limited to securities transactions. Not every parting of capital with a hope of gain qualifies, and trades over Coinbase are only securities transactions if they involve ‘investment contracts.’ The transactions at issue here do not.”

Coinbase claimed the SEC has undertaken a “radical expansion of its own authority” and claimed jurisdiction “over essentially all investment activity,” which only Congress is entitled to do under the major questions doctrine.

In an Oct. 24 X post, Coinbase chief legal officer Paul Grewal echoed the claims, saying the SEC’s definitions have “no limiting function at all.”

By arguing that any purchase in which the buyer hopes for an increase in value constitutes an investment contract-and therefore a security-the SEC is attempting a radical expansion of its own authority. Only Congress can do that as the major questions doctrine makes clear. 2/3
— paulgrewal.eth (@iampaulgrewal) October 24, 2023

Coinbase’s recent filing comes in response to the SEC’s Oct. 3 rebuttal where it asked the court to reject Coinbase’s dismissal motion, iterating its belief that various cryptocurrencies Coinbase listed were investment contracts under the Howey test.

The SEC sued Coinbase on June 6, claiming the exchange violated U.S. securities laws by listing several tokens it considers securities and not registering with the regulator.

Coinbase filed the motion for judgment on June 29 arguing the SEC was abusing its power and violating Coinbase’s due process rights.

Judge Katherine Polk Failla, who oversees the case, may ask Coinbase and the SEC to appear in court for oral arguments and then issue judgment on the case, dismiss it, or move for it to be heard in front of a jury.

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October 9, 2023 The Daily Hodl

5 lowlights of Gary Gensler’s evasive testimony before Congress

September 28, 2023 Coin Telegraph

Andy Barr

The United States Securities and Exchange Commission chief was asked whether the purchase of Pokemon trading cards is a security transaction and whether Bitcoin is a commodity.

Blamed for “kneecapping” the U.S. capital markets and slammed for dodging questions around Bitcoin and Pokemon cards, Gary Gensler appears to have had one hell of a grilling from Congress this week.

On Sept. 27, the United States Securities and Exchange Commission chief again found himself in front of lawmakers in a scheduled hearing to discuss his agency’s oversight of the markets.

Here are some of the highlights and lowlights of the hearing.

“You are the Tonya Harding of securities regulations.”

One of the more colorful analogies came from United States Representative Andy Barr, who accused Gensler of “kneecapping” the U.S. capital markets with regulatory red tape.

Barr referred to an old testimony from Gensler, where Gensler argued that the U.S. is the largest, most sophisticated and innovative capital market in the world and that it shouldn’t be taken for granted as “even gold medalists must keep training.”

“With all due respect Mr. Chairman, if the U.S. capital markets are a gold medalist, you are the Tonya Harding of securities regulations,” said Barr.

“You are kneecapping the U.S. capital markets with the avalanche of red tape coming out of your Commission.”

Barr is presumably referring to a scandal where U.S. ice skater Tonya Harding hired an assailant to attack her rival, Nancy Kerrigan, in the lead-up to the 1994 United States Figure Skating Championships and the Winter Olympics. Kerrigan ended up not competing in the U.S. championships.

Mr. Barr to Gensler:

“If the US capital markets are a gold medalist, you are the Tonya Harding of securities regulation because you are kneecapping the US capital markets…”

pic.twitter.com/D9VOxtXAGC
— John Dickens (@johnLdickens) September 27, 2023

“I wish the Biden administration would say you're fired.”

Meanwhile, U.S. Representative Warren Davidson also ripped into Gensler, saying he hoped that the Biden administration would fire him.

“I wish the Biden administration would say you're fired,” said Davidson.

Davidson accused Gensler of pushing a “woke” political and social agenda and abusing his role as the SEC’s Chair.

Gary Gensler’s tenure at the SEC highlights two key problems.

1) @GaryGensler problem
2) @SECGov structural problem

That’s why I introduced the SEC Stabilization Act to #FireGaryGensler and restructure the SEC. pic.twitter.com/Ud3giejKfZ
— Warren Davidson (@WarrenDavidson) September 27, 2023

The U.S. representative added that he hopes the SEC Stabilization Act he introduced with U.S. Representative Tom Emmer could make that happen.

“You’re making the case for this bill [SEC Stabilization Act] every day you’re acting as the Chairman,” he concluded.

Gensler wasn’t given the chance to respond.

Gensler reiterates Bitcoin isn’t a security

Asked by U.S. House Committee on Financial Services chair Patrick McHenry whether Bitcoin is a security, Gensler eventually relented, stating that Bitcoin didn’t meet the Howey Test.

“It does not meet the Howey test which is the law of the land,” Gensler said, implying that Bitcoin isn't a security.

McHenry then suggested Bitcoin must be a commodity, which Gensler avoided answering, saying the test for that is outside the scope of U.S. securities laws.

Gary Gensler says that #Bitcoin is NOT a security, but he refuses to say that it’s a commodity.

He’s running out of time. When a powerhouse like BlackRock asks for a Bitcoin ETF you MUST deliver. pic.twitter.com/yhKcMzfzx6
— The ₿itcoin Therapist (@TheBTCTherapist) September 27, 2023

Henry also suggested Gensler tried to “choke off the digital asset ecosystem” and refused to be transparent with Congress about the SEC’s connections with FTX and its former CEO Sam Bankman-Fried.

Gensler also wasn’t given the chance to respond to the claims made by McHenry.

Are Pokemon trading cards securities? It depends.

U.S. Representative Ritchie Torres used his time to quiz Gensler about his interpretation of what constitutes an investment contract.

Torres put Gensler to the test by asking whether purchasing a physical Pokemon trading card constitutes a securities transaction.

I cross-examined @SECGov Chair Gary Gensler about the term 'investment contract', which is key to determining his authority over crypto.

Gensler struggled to answer basic questions like whether an investment contract requires a contract. His evasions are deafening and damning. pic.twitter.com/EJcZEHiKGL
— Rep. Ritchie Torres (@RepRitchie) September 27, 2023

“Suppose I was to purchase a Pokemon card. Would doing so constitute a security transaction?”

Gensler responded — “I don’t know what the context is” — before eventually concluding it isn’t a security if it is purchased in a store. Torres then asked:

“If I were to purchase a tokenized Pokemon card on a digital exchange via a blockchain, is that a security transaction?”

“I’d have to know more,” replied Gensler.

Gensler then explained that it’s when the investing public can anticipate profits based upon the efforts of others — that’s the core of the Howey Test. Representative Torres called Gensler's "evasions" as "deafening and damning."

A sign of defiance

Meanwhile, among the back-and-forth cross-examinations between Gensler and U.S. Representatives, eagle-eyed observers noticed a Coinbase “Stand With Crypto” logo behind the SEC Chair.

BREAKING: Coinbase Stand with Crypto logo displayed at Gary Gensler hearing pic.twitter.com/IAwqyDEQea
— Miss Teen Crypto (@missteencrypto) September 27, 2023

The Coinbase-led initiative is a 14-month-long campaign that launched in August. It aims to push for cryptocurrency legislation in the U.S.

Coinbase also ran a “Stand with Crypto Day,” which took place in Washington, D.C. on Sept. 27 to advocate for better cryptocurrency innovation and policy.

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SEC urges court to grant Ripple Labs appeal citing ‘knotty legal problems’

September 9, 2023 Coin Telegraph

Coin Telegraph

The SEC highlighted contradictory conclusions from similar cases, along with other pending decisions as some of the contentious legal issues.

The U.S. Securities and Exchange Commission has submitted a filing urging the court to grant its motion to appeal a ruling from the Ripple Labs lawsuit that deemed that XRP was not a security when sold to retail investors.

The agency argued that there are “knotty legal problems” surrounding the court's application of the law — specifically the Howey Test — that warrant a review.

#XRPCommunity #SECGov v. #Ripple #XRP BREAKING: The SEC has filed its Reply Memorandum in Further Support of its Motion to Certify Interlocutory Appeal.https://t.co/KE1MzYKbVD
— James K. Filan (@FilanLaw) September 8, 2023

As per a Sept. 8 filing, the SEC called for the U.S. District Court for the Southern District of New York to grant its motion for interlocutory appeal, and “stay further proceedings until the resolution of that appeal.”

“The SEC respectfully requests certification for appellate review now because the issues raised by the Court’s order on summary judgment (D.E. 874) (‘Order’) present precisely the kinds of ‘knotty legal problems’ that led Congress to provide for interlocutory review.”

Judge Analisa Torres ruled in July that XRP is generally not a security under SEC guidelines, particularly when distributed via programmatic sales (e.g. sold to retail via exchanges).

In the latest filing, the SEC argued that the rulings on programmatic sales and other distributions present “legal questions” that are significant enough for the agency’s interlocutory appeal to be approved by the court.

The SEC suggested that this is down to there being a legal gray area as to whether certain crypto assets fall under the classification of investment contracts via the Howey Test or not, as it highlighted court proceedings from other cases.

“At least two opinions within this District reach contradictory legal conclusions on these issues and many other courts are considering whether similar offers and sales [...] satisfy Howey,” the SEC stated, adding that:

“While interlocutory appeal should be the exception, not the rule, this is the unusual case where the Defendants themselves say that the issues have industry-wide significance and are of special consequence, and thus is precisely the type of case as to which the Second Circuit has invited interlocutory appeal.”

These sentiments however, seemingly contradict previous statements from the agency and its chairman Gary Gensler.

On multiple occasions, Gensler has staunchly shot down the need for new crypto regulation, as he has asserted that the SEC already has clear guidelines that adequately cover the full scope of the crypto market.

Such a view includes the notion that the most of the crypto on the market falls under the definition of a security.

In a Sept. 8 tweet, Ripple’s chief legal officer Stuart Alderoty called the filing “hypocritical” as he noted that: “After years of its chairman saying the ‘rules are clear and must be obeyed’ the SEC now cries that an appeal is urgently needed to resolve these ‘knotty legal problems’."

Another SEC filing, another hypocritical pivot…

After years of its chairman saying the “rules are clear and must be obeyed” the SEC now cries that an appeal is urgently needed to resolve these “knotty legal problems." https://t.co/ige4neIWRD
— Stuart Alderoty (@s_alderoty) September 8, 2023

Coinbase’s chief legal officer Paul Grewal also chimed in by questioning how crypto firms can be on “fair notice” if there are knotty legal questions that need to be considered in court.

The SEC initially moved to appeal and stay the decision from Torres in August, arguing that there was “substantial ground for differences of opinion.”

On Sept. 1, Ripple Labs fired back by filing a memorandum of law in opposition, arguing that the SEC had unsubstantial grounds to request an appeal.

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?

Howey Test

“You are the Tonya Harding of securities regulations.”

“I wish the Biden administration would say you're fired.”

Gensler reiterates Bitcoin isn’t a security

Are Pokemon trading cards securities? It depends.

A sign of defiance

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