Judge Amy Berman Jackson has rejected the U.S. Securities and Exchange Commission’s (SEC) assertion that Binance’s BNB token’s secondary sales could qualify as securities under the Howey test.
Judge Jackson cited a similar ruling by Judge Analisa Torres in the Ripple case, emphasizing the economic reality of token transactions in applying the test.
Judge Jackson noted that the government’s argument that “cryptocurrencies are embodiments of investment contracts” and perspectives on the technical nature, platform independence, and token performance were insufficient to classify secondary sales like BNB as investment contracts.
The judge also dismissed SEC claims regarding the sale of Binance USD (BUSD) stablecoin and passive income functions. She pointed out that the SEC’s foundational theory does not directly assert tokens as securities but rather views them as investment contracts, which is inconsistent.
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It has been emphasized that the nature of tokens may evolve over time, indicating that even if tokens initially qualify as securities, they may not indefinitely retain this status. This distinction significantly undermines the SEC’s position and is a critical determinant in the classification of digital assets.
Despite Binance’s significant victory, Judge Jackson allows the SEC to continue its litigation regarding Binance’s BNB staking program, allegations of anti-fraud violations, and ICO-related BNB sales. The SEC may also maintain its claim that Binance founder Zhao Changpeng is the company’s “controller,” suggesting that Binance should register under the Exchange Act.
