Binance, along with its U.S. arm and founder CZ have filed a fresh response to the U.S. Securities and Exchange Commission’s ongoing lawsuit, arguing that the latter relies on “distorted” and “tortured” interpretations of the “Howey Test”.
The filings, submitted on Tuesday, claims that the agency failed to prove that transactions on the exchanges constituted an “investment contract” under the Howey Test’s definition.
Binance’s filing explains that the SEC’s complaint centered on customers who engaged in transactions by purchasing tokens from other users on the website. This occurred without any contract existing with a promoter for investment in a common enterprise. As such, the exchange’s lawyers argue that this does not fulfill the requirements set by the Howey Test, a Supreme Court case that determines what constitutes an investment contract and thus a security.
Separately, Binance and CZ pushed back at the SEC’s attempt to include their recent guilty plea and $4.3 billion settlement with the Department of Justice (DOJ) in the SEC legal case. They argue that this inclusion is procedurally incorrect and should not be allowed.
The SEC claims that these settlements reflect Binance’s awareness of operating within the U.S., serving Americans, and using the country’s infrastructure for transactions. In response, Binance denies the relevance of the DOJ resolutions to the SEC’s allegations and claims that the approach indicates a lack of substantial evidence to support its underlying case.
Earlier, Binance claimed that the SEC has not “plausibly alleged” securities-related violations and is attempting to extend its authority over digital assets without explicit congressional backing. The SEC’s lawsuit accuses the entities of listing unregistered securities in the form of cryptocurrencies for U.S. investors, sparking a legal battle over access to Binance.US customer funds.
The lawyers argue that the world’s largest cryptocurrency exchange does not offer securities and, as a result, the agency lacks jurisdiction to regulate its business. Additionally, they claim that the SEC’s actions have violated due process, abused its discretion, and deviated from its own previous interpretations of the securities laws.
Binance added that SEC has trampled the strict boundaries on its basic authority set by Congress.
