World’s Largest Crypto Platform Binance Hit with Class Action Over Alleged Sale of Unregistered Securities

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Binance, CEO Changpeng Zhao and several “influencers,” including Miami Heat star Jimmy Butler, face a proposed class action lawsuit over their alleged role in the illegal sale of unregistered securities. 

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The 74-page complaint against Binance, the world’s largest cryptocurrency exchange, was filed roughly a week after the Commodity Futures Trading Commission (CFTC) sued the company and several executives, alleging that it ran afoul of federal law by trading unregistered crypto derivatives. The CFTC also alleged Binance “coached” employees and VIP members on how best to sidestep regulations and compliance controls to maximize profits, the case says. 

According to the lawsuit, Binance’s native token, BNB, is a security given that its value is based on the total number of existing BNB coins and the profits of the Binance exchange, all of which “depend on the actions of others.” In fact, the filing says, unlike other crypto tokens traded on an open market, the number of BNB coins in existence depends on the “burn rate” of the token by Zhao. 

“This is a class example of a centralized exchange, which is promoting the sale of an unregistered security,” the suit argues. 

The lawsuit relays that the attorneys behind the litigation brought the first proposed class action in the United States against crypto platform Voyager Digital, alleging, in part, that the company sold unregistered securities. Voyager declared bankruptcy, and the case continues against “various aiders and abettors” who promoted the Voyager products at issue, the filing says. 

Notably, Voyager was supposed to be saved from bankruptcy by competitor FTX, who agreed to buy the platform’s assets, the suit states. However, that sale never took place given that FTX itself declared bankruptcy in the wake of a bank run sparked by Zhao disclosing that FTX was “in dire financial straits” and keeping itself afloat largely through its own native token, FTT, the complaint relays. 

The same attorneys then filed a proposed class action against FTX for its apparent sale of unregistered securities, and the litigation continues against those alleged to have “aided and abetted” the company, the complaint shares. 

Binance, for its part, was supposed to be the second “rescuer” of Voyager; however, the Securities and Exchange Commission (SEC) objected to Binance’s purchase of Voyager, and the sale has been stayed by the federal appeals court, according to the lawsuit. 

Now, the same counsel alleges Binance, like Voyager and FTX, has sold unregistered securities to investors nationwide. 

In February, the SEC told Binance that its stablecoin, BUSD, which once backed its BNB native token, should have been registered as a security under federal regulations, the case says. More recently, CFTC Chairman Rostin Behnam charged that Binance has known for years that it was violating CFTC rules, “working actively to both keep the money flowing and avoid compliance,” the suit shares, noting that Department of Justice officials and the IRS have been looking into Binance for many years. 

During the relevant time period, Binance partnered with “brand ambassadors,” including Butler and several YouTubers with considerable followings, to promote the platform and solicit new customers, the complaint says. According to the lawsuit, there is evidence that the so-called influencers have “played a major role in the rise of Binance” and that the company could not have grown as it has “without the massive input” of the promoters, who allegedly “hyped these unregistered securities for payments of multimillion dollars.” 

The proposed class action looks to cover all persons and entities residing in or outside the United States who, within the applicable statute of limitations period, bought, repurchased, invested and/or reinvested cryptocurrency coins or tokens offered and/or sold by Binance. 

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