Binance and CZ Face Supreme Court Setback in Class Action Lawsuit Over Unregistered Tokens

The US Supreme Court has delivered a blow to Binance and its former CEO, Changpeng ‘CZ’ Zhao, by allowing a class action lawsuit concerning the sale of unregistered tokens to proceed. This decision marks a significant legal challenge for the cryptocurrency giant as investors seek redress for alleged misconduct.

Investors Allege Deception Over Unregistered Tokens

Investors who purchased tokens like ELF, EOS, FUN, ICX, OMG, QSP, and TRX through Binance claim the platform failed to provide sufficient warnings about the risks involved. According to the complaint, these tokens were sold without adhering to US securities regulations, leaving buyers exposed to unacknowledged financial risks. The lawsuit aims to recover the money these investors believe they lost due to Binance’s alleged negligence.

Central to the case is whether Binance should have been subject to US securities laws despite being a non-US entity. Investors argue that the exchange’s use of US servers and the completion of transactions within the US make it liable under American law.

Legal Debate Over Jurisdiction and Securities Laws

Binance has argued that its global operations exempt it from the reach of US securities laws. The exchange referred to the Supreme Court’s 2010 Morrison v. National Australia Bank decision, which limited the application of US laws to companies operating outside American borders.

However, the 2nd US Circuit Court of Appeals in Manhattan ruled otherwise, stating that the use of US servers and the finalisation of transactions in the US establish a sufficient connection for American securities laws to apply. Binance’s subsequent appeal to the Supreme Court, claiming the 2nd Circuit misinterpreted the Morrison ruling, was rejected.

This legal precedent could have far-reaching consequences, setting new standards for how US laws are applied to international platforms like Binance.

Mounting Challenges for Binance and Its Former CEO

This class action lawsuit is just one of several legal hurdles Binance and its former CEO are facing. In November 2023, the company pleaded guilty to violations of US anti-money laundering and sanctions laws, resulting in a record-breaking $4.3 billion fine. CZ, who served four months in prison in connection with these charges, was accused of facilitating illicit transactions and failing to implement adequate anti-money laundering measures.

The troubles do not stop there. Binance and Zhao are also embroiled in a lawsuit filed by the now-defunct crypto exchange FTX. This case alleges that FTX management improperly transferred $1.8 billion to Binance and its leaders. The situation adds to the already complex legal landscape for the cryptocurrency giant.

Regulatory Pressure and International Challenges

Beyond the courtroom, Binance faces mounting regulatory pressure from several countries. Governments in Canada, Japan, and Germany have imposed strict rules that effectively ban the exchange from operating in their jurisdictions. The company’s global operations have been under intense scrutiny, with regulators questioning its compliance with financial and anti-money laundering laws.

These challenges highlight the growing regulatory focus on cryptocurrency platforms worldwide. As governments work to ensure investor protection and financial transparency, Binance’s legal and operational troubles underscore the risks of operating in an industry with evolving compliance demands.