Regulation
What Happens Next in SEC’s Fight with Binance Will Shape Cryptocurrency Policy for Years – DL News
- The SEC and Binance have a lot to lose as the case heads to trial.
- Legal experts evaluate whether a deal makes sense for both parties.
- Gensler’s crackdown on cryptocurrencies is entering a critical phase.
Gary Gensler has a lot at stake in his Binance case.
Despite three U.S. government departments settling allegations with Binance last November, Gensler and the Securities and Exchange Commission have opted out of the deal.
Instead, the SEC has maintained its case against the world’s leading cryptocurrency exchange and its former CEO, Changpeng Zhao.
And the case is coming to a head 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 increasingly shifting in favor of the cryptocurrency industry and clear court victories eluding 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 asset industry is no different from other capital markets businesses. Under federal securities laws, cryptocurrencies must be registered and regulated the same way as stocks and bonds.
In 2023, the SEC accused Binance of illegally operating an unregulated exchange and offering investors unregistered “cryptocurrency securities.”
Binance has denied the allegations (as have Coinbase and Karken, which were also sued separately.
Join the community to receive our latest stories and updates
They argue that cryptocurrencies are a completely new category of financial instruments, which justifies specific laws and regulations.
On June 28, a U.S. judge rejected Binance’s request to dismiss the case and ruled that the bulk of the lawsuit should go forward.
“Any deal would likely involve restrictions on operations that could prove too burdensome for Binance.”
—Alex More, Carrington Coleman
As Binance braces for more 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.
Legal experts say the Binance case could set a precedent that will shape the SEC’s cryptocurrency policy for years to come.
If the SEC loses, it would mean that crypto platforms would have to be considered different from traditional securities firms. That could prompt lawmakers to draft a new law that would set the legal rules for the industry.
With so much at stake for both sides, it seems like the stage is set for a potential settlement. This is what tends to happen when the damage from a loss is too much for either side to bear.
A deal comes down to costs, and that doesn’t just mean money.
“Even if Binance could reach a settlement with a reasonable cash payment, any settlement would likely involve restrictions on operations that could prove too costly for Binance to accept,” said Alex More, an attorney at the Dallas law firm Carrington Coleman. DL News.
“I don’t think Gensler and the SEC will accept a settlement that isn’t considered a decisive victory.”
— Aaron Unterman, XReg Consulting
As for the SEC, it would likely insist that any deal include the requirement to register cryptocurrencies.
“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.
A deal within reach?
Meanwhile, 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] is willing to fight to the end in court,” Unterman said.
Dared Avan Nomayo is our DeFi correspondent in Nigeria. He covers DeFi and technology. To share tips or story insights, contact him at dared@dlnews.com.