- The SEC and Binance have much to lose as case heads toward trial.
- Legal experts weigh whether a settlement makes sense for both sides.
- Gensler's crackdown on crypto is entering critical phase.
Gary Gensler has a lot riding on his Binance case.
Even though three US government departments settled charges with Binance last November, Gensler and the Securities and Exchange Commission opted out of the deal.
Instead, the SEC maintained its lawsuit against the world’s top crypto exchange and its former CEO, Changpeng Zhao.
And the case is headed toward a climax just as the Biden Administration appears to be softening its stance toward crypto.
“The stakes for the SEC and Gensler, in this case, are extremely high with political and public sentiment shifting more in favour of the crypto industry and clear court victories elusive for the SEC,” said Aaron Unterman, a former senior regulator at the Ontario Securities Commission in Canada.
Legal case
For three years, Gensler has argued that the digital assets industry is no different than other capital markets enterprises. Under federal securities laws, cryptocurrencies must be registered and regulated the same way as stocks and bonds.
In 2023, the SEC accused Binance of unlawfully running an unregulated exchange and offering investors unregistered “crypto asset securities.”
Binance has denied the allegations (as have Coinbase and Karken, which were also sued separately.
They argue cryptocurrencies are an entirely new class of financial instrument that warrant their own bespoke laws and regulations.
On June 28, a US judge rejected Binance’s bid to get the case dismissed and ruled most of the complaint should move ahead.
‘Any deal would likely involve restrictions on operations that may prove too burdensome for Binance.’
— Alex More, Carrington Coleman
While Binance is girding for more legal trouble after paying a $4.3 billion penalty last November and pleading guilty to violating US banking law, the SEC has its own worries.
The Binance case could set a precedent that defines the SEC’s crypto policy for years to come, legal experts say.
If the SEC were to lose, it would mean crypto platforms should be considered different from traditional securities companies. That could prompt lawmakers to fashion a new law laying out legal rules for the industry.
With so much at stake for both sides, it appears the stage is set for a potential settlement. This is what tends to happen when the damage for a loss is too great for either side to bear.
A settlement boils down to the costs, and that doesn’t just mean money.
“Even if Binance can reach a settlement with a reasonable cash payment, any deal would likely involve restrictions on operations that may prove too burdensome for Binance to accept,” Alex More, a litigator at the Dallas law firm Carrington Coleman, told DL News.
‘I do not see Gensler and the SEC accepting a settlement that is not viewed as a decisive win.’
— Aaron Unterman, XReg Consulting
As for the SEC, it would probably insist any settlement includes the need for registration of crypto assets.
“I do not see Gensler and the SEC accepting a settlement that is not viewed as a decisive win for the SEC,” said Unterman, who is now a managing director at XReg Consulting in the Cayman Islands.
A settlement in reach?
Meanwhile, legal experts say other SEC targets such as Coinbase and Consensys may take an even tougher line in their defences, and opt to go to trial rather than reach a settlement.
“The facts in the Coinbase case are more favourable than those in the Binance action and I believe Brian Armstrong [Coinbase CEO] is willing to fight this to the end in court,” Unterman said.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.
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