Federal Judge Amy Berman Jackson, overseeing the U.S. Securities and Exchange Commission’s (SEC) case against Binance, Binance.US, and former CEO Changpeng Zhao, has directed a court examination of whether digital assets can be classified as securities.
In a minute order dated January 18 from the U.S. District Court for the District of Columbia, Judge Jackson stated that she would entertain arguments on how the SEC deals with cryptocurrencies within the existing regulatory and legal framework. Attorneys representing Binance.US have been granted the opportunity to discuss "whether digital assets are ever securities" and address the SEC's claims that pledges might fall under the category of securities.
"The court intends to hear only one defense attorney's argument regarding [whether an investment contract must involve a contractual promise and] whether the SEC 'misunderstood the meaning of 'plan' in Howe," Judge Jackson stated. "Similarly, While both memos address the material issues doctrine and both raise contextual questions about whether litigation is an appropriate way for the SEC to continue to oversee the cryptocurrency industry, an attorney should be assigned to argue this issue for the defense.”
The Howey test has been the SEC's benchmark for determining whether an asset qualifies as a security, i.e., meeting the definition of an investment contract. Judge Jackson raised the issue, asserting that it needs to be addressed in Binance’s case concerning tokens like BNB and Binance USD (BUSD). It remains unclear when both sides will present their arguments on the matter. The SEC has maintained that these tokens largely qualify as securities, placing them under SEC regulation rather than the Commodity Futures Trading Commission. In July 2023, a judge in the SEC's case against Ripple ruled that XRP tokens were not securities programmatically sold by digital asset exchanges.
Following the Ripple ruling, lawyers for Coinbase, facing a lawsuit from the SEC, referenced precedent from that case in an August 2023 motion to dismiss. In other cases, the SEC has argued against considering whether certain tokens are securities as a "legal question" for the court and "not a fact for the jury" in lawsuits against Terraform Labs and Do Kwon.
