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A judge rules that the US Securities and Exchange Commission (SEC) may proceed with its civil suit against Binance, FTX’s former banking partner settles a $63m anti-money laundering claim, and Paxos obtains a licence to issue stablecoins in Singapore.
A US District Court judge has ruled that an SEC lawsuit against Binance may proceed, after ordering only three of the SEC’s claims to be dismissed.
On June 28, Judge Amy Jackson in response to from Binance corporate defendants and former CEO Changpeng Zhao.
In June last year, the SEC alleged 13 counts of federal securities violations against Binance and Zhao. Only one was dismissed in full; two were partly dismissed and partly upheld.
In count one, the SEC alleged Binance had offered and sold its own token, BNB, as an unregistered security — a claim that will proceed in part.
In 2017, alongside the launch of the Binance exchange, Binance sold its first tranche of BNB to investors as part of an initial coin offering (ICO).
Although Judge Jackson ruled that BNB is not in itself a security, she accepted that the way the asset was offered and sold during the ICO meets the definition of an investment contract.
In its, the SEC drew attention to the BNB Whitepaper and the language Binance used to market the new token.
Buyers of BNB were referred to as “investors” and were told that, “with your help, Binance will build a world-class crypto exchange, powering the future of crypto finance”.
Judge Jackson said the SEC has “plausibly alleged” that such marketing meets the criteria of the Howey test, namely an "investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others”.
However, she ruled that the regulator’s complaint fails to plausibly allege that secondary sales of BNB by sellers other than Binance meet the definition of securities sales.
In effect, Judge Jackson’s ruling aligns with that of Judge Analisa Torres inSEC v Ripple. Judge Torres ruled that although Ripple’s XRP token is not in itself a security, certain sales of XRP meet the criteria of a securities sale.
Claim against Binance stablecoin dismissed
Count two of the SEC’s complaint, that Binance offered and sold the BUSD stablecoin as an investment contract and therefore as an unregistered security, was dismissed in full.
Beginning in 2019, Binance offered and sold BUSD to investors on the Binance.com platform and through two trust companies.
Judge Jackson said these sales did not meet the criteria of a security under the Howey test, due to the absence of any suggestion or agreement that purchasers would profit from Binance’s efforts by buying the token.
“The description of the asset, how it was sold, and how the proceeds from its sale were to be distributed is quite different from the allegations concerning BNB, and the allegations do not align with the prongs of the Howey test,” she said.
Count three of the indictment, against Binance yield-bearing products BNB Vault and Simple Earn, was upheld for the former and dismissed for the latter.
The remainder of the SEC’s claims may proceed, the judge ruled. These allegations include operating as an unregistered exchange, broker-dealer and clearing agency, and misrepresenting anti-fraud controls and oversight on the Binance US platform.
Collapsed FTX banking partner settles for $63m
FTX’s former bank has agreed to pay $63m to settle allegations of anti-money laundering (AML) failures in the US.
On Monday (July 1), Silvergate Bank and several former executives entered settlements with the and California’s (DFPI).
In 2017, Silvergate launched the Silvergate Exchange Network (SEN), an internal payment system that crypto exchange customers could use to transfer funds to one another outside regular banking hours.
From 2017 to 2021, the bank’s deposits from crypto customers grew from $770m to $14.1bn. From April 2021 to September 2022, during the peak of the crypto bull market, SEN processed more than $1trn in transactions.
In a 2019 to the SEC, Silvergate said it had in place “proprietary compliance capabilities” that were “designed to specifically address the digital currency industry”.
This included an automated transaction monitoring system (ATMS-A) that would alert compliance staff to suspicious activity and log suspicious transactions internally.
But in April 2021, Silvergate switched to an new automated transaction monitoring system (ATMS-B) that did not monitor SEN transactions.
The bank said it did not consider SEN transactions “risky activity within any financial crime typologies” as they were internal transfers between customers.
In November 2022, following the collapse of FTX, Silvergate saw a run on its deposits. By March 2023, the bank was insolvent and agreed with state and federal regulators to implement a self-liquidation programme.
Since its wind-down, the DFPI and the Federal Reserve alleged Silvergate had failed to comply with the AML provisions and suspicious reporting requirements of the Bank Secrecy Act (BSA).
Silvergate will pay $43m to the Federal Reserve and $20m to the DFPI to settle these claims.
Separately, Silvergate has also a $50m settlement with the SEC regarding allegations that the bank misled investors about the effectiveness of its compliance programme.
The SEC settlement is “offset” by the DFPI and Federal Reserve settlements, meaning that, as long as Silvergate pays the Fed and DFPI, it does not have to pay the SEC.
Paxos to become regulated stablecoin issuer in Singapore
Paxos’ Singapore subsidiary has from the local regulator to offer digital payment token services as a Major Payments Institution (MPI).
This means Paxos will become one of the first companies to offer a “substantively compliant” stablecoin under theupcoming regulatory framework devised by the Monetary Authority of Singapore (MAS).
DBS, Singapore’s largest bank, will act as Paxos’ primary banking partner for cash management and custody of reserves.
The city-state is the third jurisdiction where Paxos is authorised to issue stablecoins, alongside the US and UAE.
In June last year, Circle, issuer of USDC, also an MPI licence that allows it to offer digital payment token services in Singapore, alongside domestic and cross-border money transfer services.
