Judge Dashes SEC’s Howey-Based Claims in Binance Case
SEC Battered in Court as Binance Case Crumbles
The Securities and Exchange Commission suffered a sharp legal defeat Monday when U.S. District Judge Amy Berman Jackson ruled that the agency cannot pursue its flagship unregistered-securities claims against Binance’s domestic trading platform. The decision not only undercuts the SEC’s two-year litigation strategy but signals to markets that the legal foundation for treating most secondary-token trades as securities offerings may be cracking.
The case began when the SEC filed a sweeping 13-count complaint in June 2023, alleging that Binance.com, Binance.US, and founder Changpeng Zhao had operated unregistered exchanges, brokerages, and clearing agencies while offering unregistered securities in the form of BNB, BUSD, and a basket of altcoins. The agency sought sweeping injunctive relief and the return of hundreds of millions in trading fees. Binance moved to dismiss, arguing that tokens traded on the secondary market do not meet the Howey test for investment contracts and that the SEC lacked authority over purely offshore conduct.
Judge Jackson agreed on several key fronts. She dismissed the core unregistered-securities counts tied to secondary sales of BNB and most other tokens, holding that the SEC failed to allege the ongoing profit expectations or promoter-audience relationship required by Howey. She also tossed the unregistered-exchange claims against the foreign Binance.com platform, finding the complaint did not plausibly allege domestic conduct. Left standing are narrower charges related to BUSD, margin lending, and alleged misstatements by Zhao—claims that now rest on a much thinner set of facts.
The ruling slashes the SEC’s leverage in settlement talks and narrows the precedent the agency hoped to set across dozens of parallel token cases. While the Commission can amend its complaint, the opinion’s language—that secondary trading of digital assets does not inherently create securities—will be cited by exchanges and token issuers seeking dismissal in New York, Massachusetts, and California dockets.
For crypto markets, the order marks the first significant judicial pushback against the SEC’s expansive theory that almost every token sale, regardless of context, constitutes an investment contract. The decision weakens the agency’s threat of enforcement against secondary trading venues and may shift power toward the CFTC on spot-market oversight. Exchanges now face lower structural litigation risk, a factor likely to compress compliance premiums and support sharper risk-on sentiment in token prices.
DeFi protocols that merely route secondary trades stand on firmer ground, though stablecoin issuers still confront residual claims if those tokens were marketed with explicit yield promises. Traders should expect more exchange listings, faster token launches, and louder calls for congressional clarity—yet the SEC’s partial victory on BUSD shows that marketing language can still trigger liability.
The court has reminded both regulators and markets that the battle over digital-asset classification is far from settled, but the first round went to crypto.
