Binance’s SEC Motion on ‘Misleading Language’ Denied

In a recent development in the ongoing legal battle between Binance — the world’s largest cryptocurrency exchange, and the U.S. Securities and Exchange Commission (SEC) — a U.S. District Court judge has denied a motion by the exchange that sought to limit or prevent the SEC from issuing public statements about the case. The decision represents another defeat in a series of blows for Binance, which has been dealing with forced exits and investigations in European countries and mass layoffs in the U.S. in recent weeks.

“While all of the lawyers in this case should adhere to their ethical obligations at all times, it is not apparent […] that it is necessary or appropriate for the Court to get involved in wordsmithing the parties’ press releases,” Judge Amy Berman Jackson said in a statement issued on June 26. “Nor is it clear that the agency’s public relations efforts to date will materially affect proceedings in this case.”

Deepening legal woes

The SEC filed a civil lawsuit against Binance on June 5, detailing 13 separate charges. The accusations ranged from mismanagement of customer funds to deception towards regulators and investors about its operations. The SEC alleged that Binance and its CEO, Changpeng Zhao, also known as “CZ,” engaged in an extensive web of deception, are guilty of myriad conflicts of interest, exhibited a lack of proper legal disclosure, and more.

In response, Binance accused the SEC of deliberately misleading the public through statements it made surrounding the lawsuit. The exchange’s legal team filed a motion on June 21 alleging misconduct in the form of a press release from the regulator, in which the SEC had accused Binance and CZ of commingling customer assets after reaching a settlement deal to avoid freezing assets of Binance.US customers in exchange for greater transparency and oversight.

Binance argued that the regulator’s press release appeared “to be designed to introduce unwarranted confusion into the marketplace” and also “risks tainting the jury pool with misleading descriptions of the evidence concerning the Defendants.”

Binance and the SEC’s hearing dates

Judge Jackson also announced that Binance must prepare its defense by September 21, 2023, and will allow the SEC to provide counterarguments on November 7.

The judge’s decision to deny Binance’s motion came just three business days after it was filed and did not require a response from the SEC. Some observers, including the former chief of the SEC Office of Internet Enforcement, John Reed Stark, interpreted the speed of the motion’s denial as evidence of it being “frivolous” and more akin to “marketing theater” than anything legally substantial.

This lawsuit against Binance is the latest in a series of actions by U.S. regulators ostensibly aimed at bringing order to a largely unregulated cryptocurrency trading space. While regulators’ stated objective is to ensure that major players in the industry adhere to U.S. laws, there has been much debate and dissent about their approach to doing so, even within the SEC’s own leadership, as to whether or not the organization’s “regulation by enforcement” policy is either effective or fair.

Legal experts believe that Binance — alongside Coinbase and other exchanges and Web3 organizations currently under the regulatory magnifying glass — faces a steep uphill battle. The outcome of these lawsuits could set a precedent for how digital asset exchanges are regulated in the U.S. in the future.

Editor’s note: This article was written by an nft now staff member in collaboration with OpenAI’s GPT-4.