Judge Rejects SEC’s Claim That BNB Sales Are Securities

Judge Amy Berman Jackson rejected the Securities and Exchange Commission's (SEC) claim that secondary sales of BNB coins on Binance qualify as securities under the Howey test.

Citing a similar decision by Judge Annalisa Torres in the Ripple case, Judge Jackson emphasized the need to consider the economic reality of the token transaction in applying the test.

Judge Jackson further noted that the government’s argument asserting that “cryptoassets are the embodiment of an investment contract,” along with points about the nature of the technology, the independence of the platform, and the performance of the tokens, was insufficient to classify BNB ‘s secondary sales as investment contracts.

In addition, the judge rejected the SEC’s claims regarding the sale of the Binance USD stablecoin (BUSD) and the “Simple Earn”passive income feature. She pointed out that the SEC’s underlying theory, which does not directly assert that the coins are securities but instead frames them as investment contracts, is inconsistent.

It was also pointed out that the nature of a token can evolve over time, suggesting that even if a token initially qualifies as a security, it will not necessarily remain so indefinitely. This distinction significantly weakens the SEC’s position and is a key decision in the digital asset classification debate.

Despite this significant victory for Binance, Judge Jackson allowed the SEC to pursue cases related to Binance’s BNB stacking program, violations of antifraud rules, and post-ICO sales of BNB. The SEC can also maintain its claims that Binance founder Changpen Zhao acted as a “control person” of the company, suggesting that Binance should have registered under the Exchange Act.