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Binance and CEO CZ Zhao Plead for Dismissal of SEC Lawsuit Over Crypto Regulatory Overreach

• Binance accused the SEC of exceeding its authority, attempting to retroactively assert control over the crypto sector.
• The exchange and its CEO, Changpeng Zhao, submitted a motion for the lawsuit dismissal on September 21.
• The SEC’s claims have had a substantial impact on Binance.US with trading volumes dropping dramatically.

The cryptocurrency exchange, Binance, and its CEO, Changpeng ‘CZ’ Zhao, have taken a step against the U.S. Securities and Exchange Commission (SEC), jointly filing a motion to dismiss the lawsuit brought against them. The duo contend that the SEC has exceeded its authority with its lawsuit filed in September 2021.

According to the 60-page petition filed with the U.S. District Court for the District of Columbia, the SEC failed to provide clear guidelines for the cryptocurrency industry before hurdling towards a lawsuit against Binance. Legal representatives for Binance and Zhao have claimed that the SEC is trying to retroactively impose its regulatory authority over the crypto industry. They argue that “the SEC distorts the text of the securities laws—reading the word ‘contract’ out of the statutory phrase ‘investment contract’.”

This lawsuit was initiated by the SEC against Binance and its affiliates in June, alleging the illegal offering of unregistered securities and unlawful operations in the United States. The charges include claims of unregistered offer and sale of crypto assets, coupled with failure to restrict U.S. investors from accessing Binance.com.

The complaint also specifies close to billions of dollars of customer funds being “commingled in an account” that belonged to an entity controlled by Zhao. The SEC further increased pressure on Binance by accusing the platform of a “lack of transparency,” leading to a substantial dip in daily trading volume at Binance.US.

In a significant development, the SEC pursued an emergency order to freeze the assets of Binance US, citing the safety of customer funds as the primary reason. However, a deal between Binance.US and the SEC averted the freeze, provided there was enhanced transparency and oversight.

Binance.US and Changpeng Zhao in their filings stand firm on the regulator’s overreach by alleging securities law violations. They press further on the agency’s far-reaching definition of ‘investment contract,’ maintaining that the SEC’s self-elevated stance over all crypto assets and transactions being securities is an unfounded exaggeration.

The arguments and defenses presented aim to highlight the limbo state of regulatory treatment for digital assets. This calls into focus the need for Congress to provide a coherent and workable framework for crypto assets and their trading platforms. Yet, the SEC continues to attempt to enlarge its jurisdiction, causing the industry to defiantly push back for clarity and fairness. The chaos has manifested in a substantial reduction of workforce at Binance.US as well as the exit of its president and CEO, Brian Shroder.

Pending the lawsuit’s resolution, the ongoing legal actions reflect the need for robust regulation as well as the crypto industry’s resistance to the perceived overreach of regulatory bodies. The face-off between Binance and the SEC represents a potentially transformative period in the crypto industry’s relationship with regulators.

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