US Supreme Court rejects Binance's bid to avoid crypto lawsuit

US Supreme Court rejects Binance's bid to avoid crypto lawsuit

U.S. Supreme Court Rejects Binance Appeal in Token Sales Lawsuit

The U.S. Supreme Court has declined to hear an appeal from Binance and its founder, Changpeng Zhao, seeking to dismiss a lawsuit brought by investors who accused the cryptocurrency exchange of illegally selling unregistered tokens that lost significant value.

The decision allows the proposed class action to proceed, following a ruling by the 2nd U.S. Circuit Court of Appeals in Manhattan. The appeals court determined that U.S. securities laws could apply to Binance despite the exchange's non-U.S. origins, as token purchases became irrevocable in the United States once payments were made.

The 2nd Circuit highlighted Binance's use of Amazon servers in the U.S. as a factor supporting its decision.

Investor Allegations

Investors who purchased tokens such as ELF, EOS, FUN, ICX, OMG, QSP, and TRX on Binance starting in 2017 allege that the platform failed to disclose the significant risks associated with these tokens. The lawsuit seeks compensation for financial losses incurred by investors.

Binance's Defense

Binance argued that U.S. securities laws should not apply because the exchange is based outside the United States. It cited the 2010 Supreme Court ruling in Morrison v. National Australia Bank, which limits the extraterritorial reach of U.S. securities laws.

In its appeal, Binance contended that the 2nd Circuit misapplied the Morrison precedent by imposing liability at multiple stages of securities transactions, including those occurring outside the U.S. Binance also asserted that the appeal raised a globally significant question about the applicability of U.S. securities laws to foreign trading platforms like Binance.com.

Broader Implications

This case is separate from Binance's high-profile legal troubles in 2023, including a guilty plea for violating federal anti-money laundering and sanctions laws, which resulted in a $4.3 billion penalty. Founder Changpeng Zhao served four months in prison and was released in September.

The lawsuit underscores ongoing legal challenges for cryptocurrency exchanges operating across international borders and the increasing scrutiny of digital asset transactions under U.S. securities law.