Judge Amy Berman Jackson has rejected the SEC’s argument that the secondary sales of Binance’s BNB coins meet the criteria for securities under the Howey Test, which is a significant victory for Binance and the cryptocurrency industry. Judge Jackson referenced a ruling in the Ripple case by Judge Analissa Torres, who said that when using the Howey Test, consideration must be given to the token transaction’s economic reality.
The BNB Tokens on Binance Are Not Securities
Judge Jackson further elaborated on her ruling, saying that the government’s reliance on the claim that “the crypto assets are the embodiment of the investment contract,” in addition to the arguments regarding the nature of the technology, the platform’s independence, and each token’s performance, is insufficient to classify the BNB Coin secondary sales as investment contracts.
Judge Jackson similarly rejected the SEC’s allegations regarding the Binance USD stablecoin (BUSD) sale and refuted the SEC’s allegations concerning “Simple Earn,” a feature of Binance that generates passive revenue.
Judge Jackson made the interesting observation that, since the government filed the action, its leading theory—that “we aren’t saying that the coins are securities – we are talking about investment contracts”—is also at odds with the agreement.
Judge Jackson said that a token’s characteristics might change over time, implying that even if it is first classified as a security, it need not stay that way forever.
This distinction leads to an important ruling in the ongoing discussion over the classification of digital assets and undercuts the SEC’s position.
SEC Will Proceed with BNB Staking Case
Despite significant victory, the U.S. Securities and Exchange Commission (SEC) may still pursue claims related to BNB staking program, anti-fraud violations, and the sale of BNB following the initial coin offering (ICO), according to a court filing cited by Judge Jackson.
Additionally, the SEC will be permitted to maintain its allegations that Changpeng “C.Z.” Zhao, the founder of Binance, served as the organization’s “control person.” As a result, the SEC can assert that the Exchange Act required Binance’s registration.
In 2023, Gary Gensler filed a complaint against Binance and the SEC, claiming that the exchange was operating illegally in the U.S. and selling BNB as unregistered securities.
CZ is presently spending the first four months of his sentence for breaking money laundering regulations. The community has also received updates on Changpeng Zhao’s post-prison intentions.
