Cryptocurrency Industry Scores Major Legal Victory as US Court Rules BNB Token and Secondary Sales Are Not Securities

The cryptocurrency industry scored a major legal victory on 2 July 2024, when a US federal court ruled that cryptocurrencies and secondary sales of the BNB token do not constitute securities.

A US federal court has ruled that cryptocurrencies and secondary sales of the BNB token are not securities, in a major legal victory for the cryptocurrency industry.

Judge Amy Berman Jackson of the US District Court for the District of Columbia issued the ruling on 2 July 2024.

BNB’s cryptocurrency and secondary sales do not constitute securities offerings, according to Judge Jackson. This decision is a major victory for Binance.US, the US arm of the world’s largest cryptocurrency exchange, Binance. The judge rejected several claims made by the US Securities and Exchange Commission (SEC).

“The court found that the SEC failed to prove that the secondary market purchasers purchased BNB with the expectation of profit, rather than for other uses,” Binance.US said in a statement. This point is crucial to passing the Howey test, a legal framework outlined by the Supreme Court to determine whether a transaction qualifies as an investment contract.

The SEC has stepped up its actions against cryptocurrency exchanges following the collapse of FTX, in an attempt to prevent further meltdowns of this kind. However, the regulator’s approach has been widely criticised for potentially stifling innovation.

Judge Jackson’s ruling could have positive implications for other ongoing legal battles, such as the case between the SEC and Ripple.

The Howey test is a legal criterion used to determine whether a transaction is an investment contract. According to the test, a transaction is an investment contract if it involves an investment of money in a joint venture with the expectation of profits from the efforts of a third party. Justice Jackson highlighted that the focus should be on the specific circumstances of each transaction, rather than considering cryptocurrencies themselves as securities.

The ruling comes as a relief to investors in the cryptocurrency sector. The SEC has previously ruled that 68 cryptocurrencies are securities, and added BNB to the list in June 2023, during its cases against Binance and Coinbase.

In June 2023, the SEC sued Binance and Coinbase for alleged securities violations. In the case against Binance, the SEC alleged that the company and its founder, Changpeng Zhao, embezzled billions of users’ funds. Despite the lack of evidence for embezzlement, Binance was accused of violating anti-money laundering laws and agreed to pay a $4.3 billion fine, one of the largest fines in history.

The next hearing in the Binance vs SEC case is set for 9 July 2024. Binance’s US wing said it was prepared for an extended period of legal investigation.

“On Friday, the Court decided that the SEC’s case against Binance.US will continue,” Binance said in a post on 2 June 2024. “We were prepared for this and look forward to the process moving forward.”

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