Binance, the largest crypto exchange in the world, and Changpeng Zhao (CZ), the exchange's CEO and founder, have filed a motion to dismiss the U.S. Securities and Exchange Commission's (SEC) lawsuit. Binance and CZ argued that Congress needs to legislate regulations for digital assets before the SEC can claim authority over crypto.
The motion to dismiss stated that as recently as 2021, Gary Gensler, the chair of the SEC, had publicly acknowledged that no "regulatory framework" existed that would give the SEC authority over crypto exchanges and that "only Congress" could give the SEC that authority, according to a copy of the motion. While members of Congress have considered more than a dozen legislative proposals for a regulatory framework for the industry in recent years, none of those proposals would give the SEC sole regulatory authority over the industry. The motion argues that the SEC is asking the Court to make major policy decisions that "only Congress can make."
The motion argues that when the SEC claims that cryptocurrencies are securities, the agency "distorts" existing securities laws by ignoring the "contract" portion of the phrase "investment contract." The motion also noted that the SEC is attempting to retroactively assert its authority over crypto transactions that occurred as far back as 2017, as well as attempting to assert its authority over transactions that have taken place outside of the U.S., despite Supreme Court precedent confirming that the SEC's jurisdiction does not extend outside of the country.
The motion cites the case of SEC v. Ripple Labs Inc., in which the judge determined that the initial sale of tokens to institutional investors constituted securities, but later sales, including those to members of the public, were not securities. The motion argues that the SEC's recent enforcement actions, including against Binance, are premised on the argument that virtually all crypto transactions are securities. The motion notes that other countries have implemented legislative regulations for digital assets rather than regulating through enforcement.
The motion argues that the majority of the claims against Binance and CZ should be dismissed on the grounds that the SEC "fails to plausibly allege that any of the crypto assets at issue is a security," while the other charges should be dismissed because they are "impermissibly extraterritorial" or violate the fair-notice doctrine.