An appeals court ruled that a district judge improperly dismissed an aspiring class action lawsuit against Binance.
The ruling doesn't make any statement about whether certain crypto tokens are securities but will let a group of investors make that argument.
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.
Edited by Aoyon Ashraf.
