court transcripts of. have started to surface, revealing that the central arguments of the crypto space are now being actively discussed in US courts.
US District Judge Amy Berman Jackson is presiding over the case between Binance, the world’s largest cryptocurrency exchange, and the US Securities and Exchange Commission (SEC), which isfor extensive securities fraud violation.
The SEC accused Binance and its founder, Changpeng Zhao, of “spinning an extensive web of deception” through alleged market manipulation and misleading regulators, shareholders, and customers.
Yesterday’s hearing revolved around the SEC seeking a temporary asset freeze and repatriation of billions of dollars, claiming that investor funds are at risk.
The SEC answers questions from the court
Judge Jackson is known for her meticulous handling of high-profile public corruption cases in recent years, including the prosecution of Paul Manafort and Roger Stone, longtime advisers to Donald Trump.
His questioning of both parties in the Binance case suggested skepticism towards each party’s arguments. He questioned the SEC’s approach of using an enforcement action instead of a rulemaking process to establish national policy to regulate crypto assets.
In response, the SEC insisted on the validity of its approach, citing longstanding rules and the need to act when laws are broken. “Because this is the law, Your Honor,” SEC counsel Matthew Scarlato responded, pointing to the existing Howey Test used to determine what constitutes a security.
In particular, Justice Jackson objected to the SEC’s distinction between “crypto assets” and “crypto assets,” the latter of which the SEC says meets the conditions outlined in the Howey test. However, when pressed to answer whether that would make mere “crypto assets” commodities, the plaintiff demurred, saying, “We are not taking a position at this time.”
Binance under fire
Judge Jackson also rejected Binance’s defense, which alluded to a lack of regulatory clarity in the crypto industry. She questioned the relevance of this argument in a court of law, emphasizing that such matters might be better suited to Congress than the judiciary.
In addition, he raised concerns about alleged offshore transfers and the complex ownership structure of the entities that own BAM Trading, Binance’s US subsidiary:
“The government at this time has said that it has not seen the evidence of foreign transfers from BAM Trading. But we have considerable evidence of offshore transfers, and we have the issue of individual defendant ownership of the entities that own BAM Management, which is the parent of BAM Trading. So there are a lot of layers here and a lot of onion to be peeled to find out who is doing what.”
Significantly, Judge Jackson summarily dismissed the argument that Binance might have been caught off guard, pointing not only to the Wells Notice the exchange received, but also to CEO Changpeng Zhao’s public comments.
“Some of your complaints claim to be surprised that the SEC thinks you are trading in securities and took this step. And part of the surprise expressed in the allegations rang a bit hollow in light of defendant Zhao’s statements over the years, the fact that the SEC banned Binance from doing business in the United States in 2019.”
The judge concluded her point by telling the defense: “You can question the strength of the evidence… You probably don’t need a lot of hyperbole about how shocking this is, and you probably don’t need to hear the word ‘draconian’.” ‘ not anymore.”
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.