Changpeng Zhao’s lawyers accuse the SEC of refusing to create crypto regulations

What’s new? Lawyers for Changpeng Zhao, the founder and former CEO of Binance, the largest centralized crypto exchange (CEX), have once again attempted to dismiss the US Securities and Exchange Commission’s (SEC) lawsuit. The day before, the regulator filed a complaint with the court stating that virtually all crypto transactions, including the blind resale of tokens on the secondary market, are securities transactions because some buyers may hope that the value of the assets will increase.

CoinDesk’s material

What else is known? In turn, Zhao’s lawyers filed a motion to dismiss this complaint. In their opinion, its text only confirms an earlier court ruling that crypto assets are not securities in themselves. However, according to the defense, the SEC “refuses to accept the logical conclusion of that ruling—that secondary market resales of the assets long after they were first distributed by their developers are not ‘securities’ transactions.”

The attorneys also accused the SEC of lacking regulatory clarity, acting arbitrarily, and refusing to develop a standard that would allow courts, litigants, and market participants to clearly define when crypto asset transactions qualify as investment contracts.

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The SEC filed a lawsuit against Zhao and three related companies — BAM Management US Holdings, BAM Trading Services, and Binance Holdings — in June 2023. They were accused of making unregistered offerings of securities, which include cryptocurrencies SOL, ADA, and others, and using customer assets for their own benefit.

The case is separate from criminal money laundering charges brought against Zhao and Binance Holdings by the US Department of Justice. Those claims were settled in November 2023: at that time, the exchange was fined $4,3 billion and Zhao resigned from his post and received four months in jail. The SEC, on the other hand, said that its process against Binance will continue despite the exchange’s agreement with the DOJ.

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In late June of this year, the court partially dismissed the SEC’s lawsuit, granting Binance’s motion to dismiss charges related to secondary sales of the BNB exchange token and the Simple Earn revenue program. In this case, the court relied on a decision from another proceeding: SEC v. Ripple. In that case, the court ruled that secondary sales of the XRP token did not violate securities laws.

The decision in SEC v. Binance was later used by Coinbase in its lawsuit against the regulator, also filed for violation of securities laws.