Regulation
What Happens Next in SEC Fight Against Binance Will Shape Crypto Policy for Years – DL News
- The SEC and Binance have a lot to lose as the case heads to trial.
- Legal experts assess whether a deal makes sense for both parties.
- Gensler’s crackdown on crypto enters critical phase.
Gary Gensler has a lot to offer when it comes to the Binance story.
Even though three departments of the U.S. government reached a settlement with Binance last November, Gensler and the Securities and Exchange Commission chose to withdraw from the deal.
Instead, the SEC has continued its lawsuit against the world’s leading cryptocurrency exchange and its former CEO, Changpeng Zhao.
And the case is heading for a tragic outcome just as the Biden administration appears to be softening its stance on cryptocurrencies.
“The stakes for the SEC and Gensler in this case are extremely high, with political and public sentiment shifting further in favor of the crypto industry and clear legal victories being difficult for the SEC to achieve,” said Aaron Unterman, former chief regulator at the Ontario Securities Commission in Canada.
Legal case
For three years, Gensler has been saying that the digital asset industry is no different from any other business in the financial markets. Under federal securities laws, cryptocurrencies must be registered and regulated in the same way as stocks and bonds.
In 2023, the SEC accused Binance of illegally operating an unregulated exchange and offering investors unregistered “crypto asset securities.”
Binance denied the allegations (as did Coinbase and Karken, which were also continued separately.
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They argue that cryptocurrencies constitute an entirely new class of financial instruments that warrant their own bespoke laws and regulations.
On June 28, a U.S. judge denied Binance’s request to dismiss the case and ruled that the bulk of the complaint should proceed.
“Any deal would likely involve restrictions on operations that could prove too burdensome for Binance.”
—Alex More, Carrington Coleman
As Binance braces for further legal trouble after paying a $4.3 billion fine last November and pleading guilty to violating U.S. banking law, the SEC has its own concerns.
The Binance case could set a precedent that would define the SEC’s crypto policy for years to come, legal experts say.
If the SEC were to lose, it would mean that cryptocurrency platforms would have to be considered different from traditional securities firms. That could prompt lawmakers to draft a new law that would set legal rules for the industry.
With the stakes so high for both parties, it seems like everything is set for a possible settlement. This is what usually happens when the damage caused by a loss is too great for either party to bear.
A settlement comes down to costs, and that doesn’t just mean money.
“Even if Binance reaches a settlement with a reasonable cash payment, any settlement would likely involve restrictions on trading that may prove too onerous for Binance to accept,” said Alex More, an attorney at Dallas law firm Carrington Coleman. DL News.
“I don’t see Gensler and the SEC agreeing to a settlement that isn’t seen as a decisive victory.”
—Aaron Unterman, XReg Consulting
As for the SEC, it would likely insist that any regulation include the need to register crypto assets.
“I don’t see Gensler and the SEC agreeing to a settlement that isn’t seen as a decisive victory for the SEC,” said Unterman, who is now managing director of XReg Consulting in the Cayman Islands.
An agreement in sight?
At the same time, legal experts say other SEC targets, such as Coinbase and Consensys, could take an even tougher line of defense and choose to go to trial rather than reach a settlement.
“The facts in the Coinbase case are more favorable than those in the Binance action and I believe Brian Armstrong [Coinbase CEO] “He’s prepared to fight to the bitter end in court,” Unterman said.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. He covers DeFi and technology. To share tips or information on articles, please contact him at osato@dlnews.com.