The SEC’s Invocation of the Terraform Labs Ruling in the Binance Lawsuit
Mustafa Mulla4 Jan 20241 min read
In the lawsuit between Binance, Binance.US, former CEO Changpeng ‘CZ’ Zhao, and the U.S. Securities and Exchange Commission (SEC), the securities regulator has submitted a notice of supplemental authority with the court. The SEC has cited the recent ruling in SEC v. Terraform Labs, which determined that UST and LUNA were securities, as relevant to the case against Binance and its affiliates.
The SEC has invoked the decision in SEC v. Terraform Labs to strengthen the definition of “investment contract” and combat attempts by defendants to violate established legal principles. In the Terraform Labs case, the court applied the Howey Test to categorize UST, LUNA, wLUNA, and MIR as investment contracts, thereby classifying them as securities. This action underscores the SEC’s commitment to enforcing decades-old settled law and preventing violations in the digital asset space.
Relevance to Binance
The court granted summary judgment to the SEC in Terraform Labs for violations of Section 5 of the Securities Act of 1933 and contradiction of exemptions under Regulations due to selling securities to US investors. Now, judges in Binance lawsuits claim Binance might be practicing the same things. This development strengthens the SEC’s statement that Binance’s actions constitute securities offerings subject to regulation under U.S. law.
