CZ, Binance Argue SEC Crypto Complaint Lacks Standards

On November 4, lawyers for Binance and its former CEO, Changpeng Zhao (CZ), filed a motion to dismiss the amended complaint filed by the Securities and Exchange Commission (SEC).

This move underscores Binance’s ongoing efforts to counter regulatory pressure amid recent legal challenges, which have highlighted the increasingly strict U.S. regulatory stance on cryptocurrency.

Binance, CZ Fight SEC’s Crypto Rules

In its filing, Binance’s legal team argued that the SEC’s amended complaint refuses to articulate any standard for determining when crypto asset transactions qualify as investment contracts under US securities law.

The lawyers allege that this vagueness leaves market participants unclear about which transactions fall within the scope of securities regulations and which do not. This, in their opinion, ultimately puts the entire crypto industry in regulatory limbo.

“The SEC’s amended complaint continues to insist that virtually all transactions involving crypto assets are securities transactions, simply because some buyers might hope the assets will increase in value,” the latest filing stated.

Read more: A Detailed Comparison of Binance vs. Binance.US

According to the lawyers, this stance is inconsistent with previous judicial interpretations. The lawyers contend that the SEC’s approach ignores a court ruling indicating that crypto assets are not automatically considered securities. Specifically, in the SEC versus Ripple case, Judge Analisa Torres determined that XRP was only a security when sold to institutional customers.

Still, the SEC also appealed this decision recently, with the case expected to drag on until July 2025. Using this case as a reference, the legal team asserted that the SEC is failing to accept the “logical conclusion” of that ruling — that transactions in crypto assets, especially secondary market trades long after initial distribution, are not securities transactions.

Binance’s legal team also noted that the SEC dropping claims involving Ethereum (ETH) without explanation points to selective enforcement. They say this further highlights the need for a clear regulatory standard.

“The SEC recently abandoned its claim that transactions involving Ether are investment contracts,” the lawyers wrote.

As BeInCrypto reported, the SEC initially filed its lawsuit against Zhao and Binance entities in June 2023. The regulator accused them of violating US securities laws.

The complaint targeted CZ and Binance entities (BAM Management US Holdings, BAM Trading Services, and Binance Holdings). It was alleged that they had failed to register various activities with the SEC, which had resulted in “unlawful operations.”

An Industry-Wide Trend of Legal Pushback

Binance continues to assert its innocence, arguing that the SEC’s definitions are overly broad and unclear. In July, the SEC amended its complaint against Binance, notably dropping its request for a ruling on Binance’s “Third Party Crypto Asset Securities.” While this move appears to be a calculated effort to bolster the SEC’s case, the revisions have raised additional questions about regulatory standards in the crypto industry.

As the case progresses, the SEC’s approach is likely to affect the future of crypto regulations in the US, especially as it pursues similar claims against other companies. Among them is gaming firm Immutable, which recently received a Wells notice signaling potential enforcement action.

Of note, however, Binance is not alone in its stance against the SEC’s regulatory approach. Other major exchanges have also recently challenged the SEC’s attempts to classify crypto assets as securities.

Kraken, for example, has publicly opposed the agency’s labeling of specific tokens as securities. The exchange argued that the SEC is imposing “arbitrary” standards without clear guidance.

“The SEC has no authority to regulate Kraken’s digital asset trading platform […] because the Digital Assets are not securities or investment contracts,” Kraken said.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

The absence of a clear regulatory framework has sparked a wave of lawsuits and enforcement actions, turning the relationship between crypto exchanges and regulators into a legal battleground. Binance’s motion to dismiss the SEC’s complaint highlights a growing assertiveness in the industry, as companies call for clearer guidelines they argue are essential for operating in compliance with US laws.