Appeals Court Revives Aspiring Class Action Lawsuit Against Binance

A
group
of
investors
who
tried
to
sue
crypto
exchange
Binance,
former
CEO
Changpeng
Zhao
and
other
executives
are
getting
a
new
chance
after
an
appeals
court
reversed
a
lower
court
ruling
dismissing
the
case.

The
Second
Circuit
Court
of
Appeals

ruled
Friday
that
a
putative
(or
aspiring)

class
action
lawsuit
against
the
world’s
largest
crypto
exchange
should
not
have
been
dismissed
by
a
federal
judge
in
the
Southern
District
of
New
York.
The
suit
was
originally
brought
in
April
2020
by
a
group
of
crypto
investors,
who
alleged
they
purchased
securities
from
Binance,
including
the
ERC-20
tokens
EOS,
TRX,
ELF,
FUN,
ICX,
OMG,
and
QSP.

The
EOS
token
is
issued
by
Block.One,
the
parent
company
to
Bullish,
which
in
turn
is
CoinDesk’s
parent
company.

Judge
Andrew
Carter
of
the
Southern
District

ruled
in
May
2022
that
the
plaintiffs
had
filed
the
lawsuit
after
the
statute
of
limitations
expired
and
that
Binance
was
not
a
domestic
exchange
and
did
not
have
strong
enough
ties
within
the
U.S.
to
meet
the
standards
of
federal
securities
laws,
ruling
to
dismiss
the
case.

Friday’s
ruling,
which
reverses
Judge
Carter’s
decision
and
sends
the
case
back
to
the
district
court,
said
the
plaintiffs
“plausibly
alleged”
that
transactions
involving
the
assets
in
question
were
finalized
on
servers
within
the
U.S.
and
that
they
had
accessed
Binance
from
the
U.S.
The
ruling
also
took
aim
at
Binance’s
previous
claims
that
it
had
no
headquarters
or
any
physical
location.

The
circuit
court
also
took
aim
at
the
timeliness
question,
saying
the
plaintiffs
did
not
start
the
statute
of
limitations
clock
until
they
purchased
the
tokens,
which
was
within
a
year
of
them
filing
the
suit
(it’s
worth
noting
that
there
were
more
tokens
in
the
original
complaint;
only
seven
are
involved
in
Friday’s
ruling).

“This
ruling
brings
needed
clarity
to
the
question
of
when
secondary
market
trading
of
digital
assets
alleged
to
be
securities
are
domestic
and
thus
subject
to
the
U.S.
federal
securities
laws,”
said
Drew
Hinkes,
a
partner
at
K&L
Gates.

Importantly,
the
ruling
doesn’t
say
that
the
tokens
at
the
heart
of
the
suit
are
or
aren’t
securities.
If
the
case
isn’t
appealed
and
goes
back
to
the
district
court,
the
parties
will
get
a
chance
to
argue
over
whether
the
tokens
meet
the
definition
of
a
security.

In
a
statement,
plaintiffs’
attorney
Jordan
Goldstein,
a
partner
at
Selendy
Gay,
said,
“On
behalf
of
investors
who
traded
on
Binance,
we
are
pleased
that
a
Second
Circuit
panel
has
unanimously
acknowledged
the
strength
of
our
claims
and
permitted
this
action
to
proceed.
We
look
forward
to
prosecuting
this
class
action
against
Binance
and
its
founder
Changpeng
Zhao.”

Binance
can
still
try
to
appeal
to
the
U.S.
Supreme
Court;
if
it
doesn’t,
or
if
the
Supreme
Court
chooses
not
to
take
the
appeal
up,
the
district
court
will
take
over
again.
The
exchange
did
not
immediately
return
a
request
for
comment.