The next step in the SEC-Binance dispute will shape crypto policy for years to come

Author: Osato Avan-Nomayo Source: DLNews Translation: Shan Ouba, Golden Finance

Summary

• SEC and Binance face huge losses as the case moves to trial.

• Legal experts weigh whether the settlement is beneficial to both parties.

• Gensler's crackdown on cryptocurrencies is entering a critical stage.

Gary Gensler has high hopes for the Binance case.

Despite a settlement between three U.S. government departments and Binance last November, Gensler and the SEC chose to withdraw from the deal. Instead, the SEC maintained its lawsuit against the world's top cryptocurrency exchange and its former CEO Changpeng Zhao.

The case is heading towards a climax just as the Biden administration appears to be softening its stance on cryptocurrencies.

Aaron Unterman, a former senior regulator at the Ontario Securities Commission in Canada, said: "The risks for the SEC and Gensler in this case are extremely high because politics and public sentiment are increasingly leaning in favor of the cryptocurrency industry, and it will be difficult for the SEC to achieve a clear victory in court."

The Legal Case

For three years, Gensler has argued that the digital asset industry is no different from other capital market businesses. Under federal securities laws, cryptocurrencies must be registered and regulated like stocks and bonds.

In 2023, the U.S. Securities and Exchange Commission (SEC) accused Binance of illegally operating an unregulated exchange and offering unregistered "crypto-asset securities" to investors.

Binance denied the allegations (as did Coinbase and Karken, which were also sued separately).

They argued that cryptocurrencies were a completely new type of financial instrument that required their own specialized laws and regulations.

On June 28, a U.S. judge rejected Binance’s request to dismiss the case and ruled that most of the litigation should proceed.

“Any transaction would likely involve operational restrictions that could place an undue burden on Binance.”

— Alex More, Carrington Coleman

While Binance is bracing for more legal trouble after paying a $4.3 billion fine and admitting to violating U.S. banking laws last November, the SEC has its own concerns.

Legal experts say the Binance case could set a precedent that determines the SEC’s crypto policy for years to come.

If the SEC loses, it would mean that crypto platforms should be treated differently from traditional securities firms. That could prompt lawmakers to enact a new law to set legal rules for the industry.

With so much at stake for both sides, the stage seems set for a settlement. This often happens when both sides have too much to lose to bear.

The key to a settlement is cost, and that doesn’t just mean money.

“Even if Binance is able to settle with a reasonable cash payment, any agreement would likely involve operational restrictions that would be too onerous for Binance to accept,” Alex More, a litigation attorney at Dallas law firm Carrington Coleman, told DL News.

“I don’t think Gensler and the SEC would accept a settlement that wasn’t seen as a decisive victory.”

—   Aaron Unterman, XReg Consulting

As for the SEC, it will likely insist that any resolution include the need for crypto assets to be registered.

“I don’t think Gensler and the SEC would accept a settlement that wasn’t a decisive victory for the SEC,” said Unterman, now managing director of XReg Consulting in the Cayman Islands.

A Settlement?

Meanwhile, legal experts say other SEC targets like Coinbase and Consensys may take a stronger defensive stance 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 case, and Brian Armstrong (Coinbase CEO) is willing to fight it out in court.