Binance Founder Zhao Faces New SEC Complaint Focused on BNB Token Listing and Trading Procedures

The Securities Exchange Commission (SEC) focused on Binance's token listing and trading procedures in its proposed amended complaint against the exchange

The Securities Exchange Commission (SEC) has filed a proposed amended complaint against Binance, detailing its allegations that the crypto exchange offered several tokens for sale as unregistered securities.

The complaint, filed on Monday, follows a federal judge's decision to grant the SEC's motion to dismiss certain claims in its initial lawsuit against Binance. The judge had ruled that the SEC's allegations regarding Binance's Simple Earn product and BNB token sales projects were insufficient to establish that the tokens were offered and sold as securities.

In its proposed amended complaint, the SEC argues that the judge's concerns were related to the dismissal of certain portions of its initial lawsuit—specifically, Binance's Simple Earn product and BNB token sales projects. It also bolstered other allegations that the judge did not fully address in her decision, particularly 10 digital assets that the SEC used as evidence that Binance was acting as an unregistered securities provider.

The SEC's fraud case claimed that BAM Trading and BAM Management had misled investors about their internal controls.

In a June 2024 ruling, Judge Amy Berman Jackson allowed the majority of the SEC's charges to go forward while dismissing allegations related to Binance's secondary BNB sales and Simple Earn product.

However, during a hearing in July 2024, lawyers debated whether the judge's decision meant that the 10 cryptocurrencies that the SEC claimed were also distributed as unregistered securities remained relevant to the case.

Since Binance and its affiliated parties have been aware of the accusations since last June and still have an opportunity to respond, the SEC stated that granting the motion to file an amended complaint will not have a negative impact on Binance and its affiliated parties. The exchange has until October 11 to oppose the motion.

Binance founder and former CEO Changpeng ‘CZ’ Zhao is currently serving a four-month prison term in FCI Lompoc II. He is due for release on September 29th. Image Source: US Bureau Of Prisons.

BNB in The Crosshairs of SEC

The proposed amended complaint provides much more detail on the SEC's claims regarding Binance's listing of various tokens, including its native coin, BNB, and how the regulator believes the exchange encourages investments in these tokens.

The complaint also noted that some cryptocurrencies are built on top of blockchains, while others are native to a specific blockchain. In another line, it was clarified that proof-of-stake networks, like proof-of-work networks, continue to pay validators. Additionally, the proposed filing adds "initial exchange offerings" to the section on initial coin offerings.

Another significant addition to the filing claims that Binance plays a crucial role in the market for cryptocurrency assets that are offered for sale as securities. It allegedly provides these markets with information by amplifying and republishing the statements and actions of issuers and promoters.

The SEC further alleges that Binance's BNB burns and support for BNB-using projects are also intended to help increase the token's value. According to their allegation, Binance paid BNB employees in the United States, including executives from BAM Trading (Binance.US).

The filing includes similar additional information on Binance Simple Earn and the ten digital assets – ADA, ALGO, ATOM, AXS, COTI, FIL, MANA, MATIC, SAND, and SOL – that were sold on the Binance platform as unregistered securities.

Clarifying Confusions Around Crypto Assets and Securities

In the motion for the proposed amended complaint, the SEC stated that it was removing the phrase "crypto asset securities," noting in a subsection that the agency "is not referring to the crypto asset itself as the security." Instead, the SEC stated that it "regrets any confusion that may have been invited" by referring to “the full set of contracts, expectations, and understandings centered on the sales and distributions” of the relevant digital assets when using the phrase.

"Crypto assets that were offered and sold as securities" has replaced "crypto asset securities" in several points of the proposed amended complaint.