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Binance, the world’s largest cryptocurrency exchange, faced off against the SEC in court on Monday in an effort to have the regulator’s lawsuit against it dismissed.
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Both sides faced questions from the judge about why certain cryptocurrencies should be considered securities and subject to SEC rules.
During the hearing, U.S. District Judge for the District of Columbia Amy Berman Jackson pressed both sides on whether they were making a “stretch” in their arguments.
Whether other assets traded on Binance meet or do not meet the criteria of the Howey test, a set of parameters used by the SEC to determine whether an asset is a security.
In June, the SEC sued Binance Holdings and former CEO Changpeng Zhao, accusing the cryptocurrency exchange of lying to customers, not restricting U.S. investors’ access to Binance, misdirecting capital to separate investment funds owned by Zhao, and operating as an unregistered exchange.
The SEC also said that 12 tokens on the exchange, including BNB and BUSD, are securities.
The event on Monday was the second major showdown between the agency and cryptocurrency exchanges this month. Coinbase and the SEC faced off in court separately last week in a separate case.
Howey Disagreement (Binance)
Judge Jackson criticized Binance for how its attorneys portrayed the Howey Test during Monday’s hearing.
“Howey says an investment contract is an offer to sell, a contract, transaction, or plan,” Jackson said. “One of three things. It wasn’t talking about a contract-based transaction or plan.”
Binance’s representative attorneys insisted that a real contract is necessary for an asset to be a security. The judge later backed down, arguing that case law says the law was designed to be broad.
Later in the hearing, Jackson asked SEC attorneys about the criticism they have received for being unclear about how the rules will be applied to the cryptocurrency industry.
The SEC’s attorney said he disagreed that the agency has made contradictory statements, pointing to guidance the agency has issued over the years.
The SEC attorney said, “Howey is clear and you don’t need a regulator to come to you and tell you specifically that you might be violating securities laws.”
In the SEC’s view, Binance’s constant promotion of its business and its BNB and BUSD tokens created reasonable expectations of profit for people who bought those tokens. Binance’s attorneys, on the other hand, argued that the mere fact of promotion cannot be a factor by itself, because any business promotes itself.