Binance to face off against US securities regulator in court

Illustration shows smartphone with displayed Binance logo

By Chris Prentice, Jody Godoy and Hannah Lang

(Reuters) -Binance is due to square off against the U.S. Securities and Exchange Commission (SEC) in a Washington courtroom next week, in another high-profile hearing involving the agency and a crypto exchange that could define how cryptocurrencies are regulated.

The world's largest crypto exchange previously asked federal Judge Amy Berman Jackson to toss out a lawsuit the SEC filed in June alleging Binance broke its rules, and is expected to make its case for dismissal before her on Monday.

The regulator accused Binance, its CEO and founder Changpeng Zhao and the exchange's U.S. arm of artificially inflating its trading volumes, diverting customer funds, failing to restrict U.S. customers from its platform and misleading investors about its market surveillance controls.

It also accused Binance of unlawfully facilitating trading of several crypto tokens the SEC deemed unregistered securities.

The hearing had originally been slated for Friday but was postponed due to snow in the Washington, D.C., area, the court said in a notice. It has been rescheduled for Monday, Jan. 22 at 10 a.m. EST (1500 GMT), the notice said.

The hearing will follow a separate hearing earlier this week in the SEC's case against rival U.S. crypto exchange, Coinbase, which was also accused by the SEC of trading cryptocurrencies that should have been registered.

The SEC has long argued most crypto tokens are akin to securities subject to its oversight, while the crypto sector largely disputes the SEC's stance. Both cases are expected to help shape the SEC's authority over the sector.

BAM Trading, the operator of Binance.US, has said in court filings that the SEC does not have the authority to oversee crypto assets, an argument similar to that of Coinbase, which is also seeking dismissal of the SEC case.

Binance has also said the U.S. regulator has not shown that Binance committed fraud.

Binance Holdings last year agreed to pay $4.3 billion to settle with the Department of Justice and Commodity Futures Trading Commission over illicit finance breaches, and Zhao pleaded guilty to breaking U.S. anti-money-laundering laws. But the SEC's case is still hanging over the exchange.

While Binance settled with other agencies including the DOJ and CFTC, it has been unwilling to settle with the SEC because doing so would mean conceding that the tokens cited in the case are securities, said a source familiar with the discussions. That admission could affect Binance's business model, perhaps more than the anti-money-laundering compliance issues, the source said.

Binance also wanted to take its chances in court, believing it had a strong case that the SEC was overreaching its jurisdiction and had not proved fraud, said a second person with knowledge of the matter.

The two sources declined to be identified because the legal proceedings are confidential.

The SEC's lawsuit against Binance is one of a slew of cases the regulator has brought against crypto firms in recent years.

The SEC focused initially on companies selling digital tokens, but has shifted to firms offering trading platforms and clearing activity, and acting as broker-dealers.

The SEC had a winning record in crypto when it sued firms over tokens they issued. But last year it suffered a partial loss in a high-profile case against Ripple, another crypto company.

(Reporting by Chris Prentice and Jody Godoy in New York and Hannah Lang in Washington; Editing by Daniel Wallis, Sharon Singleton and Matthew Lewis)