SEC and Binance Face Tough Questions From Judge in Landmark Crypto Case

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Court Transcripts from SEC v. Binance Holdings, Inc, et. al. began to appear, revealing that central arguments in the crypto space are now being actively discussed in US courts.

U.S. District Judge Amy Berman Jackson is presiding over the case between Binance, the world’s largest cryptocurrency exchange, and the U.S. Securities and Exchange Commission (SEC), which is suing the exchange for securities fraud violations movables.

The SEC has accused Binance and its founder, Changpeng Zhao, of “weaving a vast web of deception” through alleged market manipulation and the deception of regulators, shareholders and customers.

Yesterday’s hearing revolved around the SEC asking for a temporary asset freeze and the repatriation of billions of dollars, saying investors’ funds are at risk.

SEC responds to court questions

Judge Jackson is known for her meticulous handling of high-profile public corruption cases in recent years, including the prosecutions of longtime Donald Trump advisers Paul Manafort and Roger Stone.

His questioning of both sides in the Binance case suggested skepticism towards each side’s arguments. She questioned the SEC’s approach of using enforcement action instead of a rule-making process to set national policy for regulating crypto assets.

In response, the SEC insisted on the validity of its approach, citing long-standing rules and the need to act when laws are violated. “Because it’s the law, Your Honor,” replied SEC attorney Matthew Scarlato, pointing to the existing Howey test used to determine what constitutes a security.

In particular, Judge Jackson took issue with the SEC’s distinction between “crypto assets” and “securities of crypto assets,” the latter of which the SEC says meets the conditions set out in the Howey test. However, when asked to respond if it would make mere “crypto assets”, the asker balked saying, “We are not taking a position at this time.”

Binance under fire

Judge Jackson also pushed back against Binance’s defense, which alluded to a lack of regulatory clarity in the crypto industry. She questioned the relevance of that argument in court, pointing out that such questions might be more suited to Congress than to the judiciary.

Additionally, she expressed concern about alleged offshore transfers and the complex ownership structure of entities that own BAM Trading, the US subsidiary of Binance:

“The government has said at this stage that it has not seen evidence of offshore transfers from BAM Trading itself. But we have considerable evidence of offshore transfers and we have the problem of ownership by the individual defendants from the entities that own BAM Management, which is the parent company of BAM Trading, so there are a lot of layers going on here and a lot of onions that need to be peeled as to who does what.

Significantly, Judge Jackson summarily dismissed the argument that Binance might have been caught off guard, pointing to not only the Wells notice received by the exchange, but also CEO Changpeng Zhao’s public comments themselves.

“Some of your claims claim to be shocked that the SEC thinks you deal in securities and took this action. over the years, due to the SEC banning Binance from doing business in the US in 2019.”

The judge concluded her remarks by telling the defense, “You can quibble about the strength of the evidence…I probably don’t need a lot of hyperbole about how shocking it is, and I probably don’t.” need to hear the word “draconian”. ‘ more.”

As the crypto industry continues to mature, the results of this landmark case will be closely watched by industry players, regulators and investors around the world.

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