Federal Judge Amy Berman Jackson, overseeing the SEC case against Binance, Binance.US, and Changpeng Zhao, has ordered a court review of digital assets to determine their status as securities.
In a minute order dated Jan. 18, Judge Jackson announced her intention to assess how the SEC treats cryptocurrencies within existing regulatory and legal frameworks. Specifically, she will allow lawyers representing Binance.US to address two key questions: whether a digital asset can be considered a security indefinitely and the SEC’s allegations regarding the classification of staking as a security.
The court plans to hear arguments on whether an investment contract must involve a contractual undertaking and whether the SEC’s understanding of the term “scheme” in the Howey test is accurate. These issues will be addressed by one defense attorney. Additionally, the major questions doctrine and the appropriateness of litigation as a means of overseeing the crypto industry will be discussed by another defense attorney.
The Howey test, which assesses whether an asset meets the definition of an investment contract, has been the SEC’s standard for determining securities. Judge Jackson raised concerns about its applicability in the case involving Binance’s tokens, including BNB and Binance USD (BUSD). The timeline for these arguments remains unclear.
The SEC has frequently argued that tokens should be categorized as securities, subjecting them to regulatory oversight by the SEC rather than the Commodity Futures Trading Commission. However, in July 2023, a judge in the SEC’s case against Ripple ruled that XRP was not a security in the context of programmatic sales on digital asset exchanges.
Following the Ripple ruling, Coinbase’s lawyers, facing their SEC lawsuit, cited this precedent in an August 2023 motion to dismiss. The SEC has also maintained that the question of whether certain tokens qualify as securities should be determined by the court as a legal matter, not a factual issue for a jury to decide, as seen in their lawsuit against Terraform Labs and Do Kwon.
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