A new opportunity has been given to a group of investors who are trying to sue Binance and its former CEO Changpeng Zhao and other executives. The decision came after an appeals court overturned a lower court decision that had previously dismissed the case.
The Second Circuit Court of Appeals ruled today that the proposed class action lawsuit against Binance should not have been dismissed by a federal judge in the Southern District of New York. The lawsuit was first filed in April 2020 by a group of cryptocurrency investors who claimed to have purchased securities from Binance, including ERC-20 tokens EOS, TRX, ELF, FUN, ICX, OMG and QSP.
Southern District Judge Andrew Carter ruled in May 2022 that the plaintiffs filed the lawsuit after the statute of limitations expired. It also led to the dismissal of the case, stating that Binance was not a domestic exchange and did not have strong enough ties within the United States to meet the standards of federal securities laws.
However, Friday's ruling, which reversed Judge Carter's decision and sent the case back to the district court, said the plaintiffs “plausibly allege” that transactions involving the assets in question were completed on servers in the United States and that they accessed Binance from the United States. The ruling also challenged Binance's previous claims that it has no headquarters or any physical location.
The court also touched upon the statute of limitations issue, stating that the statute of limitations did not start until the plaintiffs purchased the tokens, and that this period was within one year after they filed the lawsuit.
“This decision brings needed clarity to the question of when secondary market trading of digital assets purporting to be securities is domestic and therefore subject to U.S. federal securities laws,” said Drew Hinkes, a partner at K&L Gates.
It is important to note that the decision does not determine whether the tokens at the center of the case are securities. If the case is not appealed and returns to district court, the parties will have a chance to argue whether the tokens meet the definition of a security.
Plaintiffs' attorney Jordan Goldstein, a partner at Selendy Gay, said: “On behalf of investors trading on Binance, we are pleased that the Second District Court panel unanimously recognized the strength of our claims and allowed this lawsuit to proceed. We look forward to pursuing this class action against Binance and its founder Changpeng Zhao.” “We are waiting,” he said.
Binance still has the option to appeal to the US Supreme Court.
*This is not investment advice.