The U.S. Supreme Court denied Binance and its former CEO Changpeng Zhao’s petition to review a lower court ruling that U.S. securities laws apply to the cryptocurrency exchange, allowing a class action lawsuit to proceed.
The decision, as reported by Reuters, adds to the mounting legal challenges faced by the world’s largest cryptocurrency exchange.
The case stems from claims by investors who purchased tokens such as ELF, EOS, FUN, ICX, OMG, QSP, and TRX through Binance starting in 2017.
They allege the exchange failed to disclose the significant risks associated with these tokens and are seeking reimbursement for their losses.
The 2nd U.S. Circuit Court of Appeals in Manhattan ruled that U.S. securities laws could be applied to Binance because token purchases became irrevocable in the United States once investors made payments.
The court also cited Binance’s use of domestic servers from Amazon Web Services to justify its decision.
Binance has argued that its operations outside the United States exempt it from U.S. securities laws.
The exchange relied on the Morrison v National Australia Bank case, a 2010 Supreme Court decision that limits the extraterritorial reach of these laws, to support its claim.
However, the 2nd Circuit found the location of the transaction’s finalisation sufficient to establish jurisdiction.
In its Supreme Court petition, Binance claimed the lower court’s interpretation of the Morrison ruling could expand liability to multiple stages of securities transactions across jurisdictions, raising concerns about the global applicability of U.S. laws to foreign platforms like Binance.com.
The Supreme Court’s decision does not address Binance’s separate legal challenges.
In November 2023, the exchange pleaded guilty to violating federal anti-money laundering and sanctions laws, resulting in a US$4.3 billion penalty.
Its founder, Zhao, served a four-month prison sentence related to the case before being released in September 2023.
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