A federal appeals court on Friday reinstated a case in which investors accused Finans, the world's largest cryptocurrency exchange, of violating US securities laws by selling unregistered tokens that lost their value.
In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals in Manhattan held that domestic securities laws could plausibly apply because investors in the proposed class action cannot withdraw tokens once they have purchased them in the United States.
District Judge Alison Nathan ruled that Binance hosts its site on domestic Amazon computer servers because Binance “infamously denies the applicability of the securities laws of other countries.”
The appeals court also held that investors can bring claims arising from purchases made within the year before they file suit.
Friday's decision reversed a March 2022 ruling by U.S. District Judge Andrew Carter in Manhattan and sent the case back to him.
The appeal affected investors who bought seven tokens – ELF, EOS, FUN, ICX, OMG, QSP and TRX – through Binance starting in 2017, which quickly lost their value.
They claim Binance failed to warn them of the tokens' “significant risks” and are demanding their money back.
Finance argued that US securities laws did not apply because the exchange was outside the country.
The company cited the US Supreme Court's 2010 decision, Morrison v. National Australia Bank, which limited the scope of domestic securities laws.
Binance and its lawyers did not immediately respond to requests for comment. Lawyers for the investors did not immediately respond to similar requests.
The case is separate from one in which Finance recently pleaded guilty and was fined more than $4.3 billion for violating federal anti-money laundering and sanctions laws.
Binance founder Changpeng Zhao has resigned as CEO after pleading guilty to violating money laundering laws. His sentencing is scheduled for April 30.
The case is Lee et al v. Binance et al., 2nd US Circuit Court of Appeals, no. US District Court, Southern District of New York, no. 22-972. (Reporting by Jonathan Stempel in New York; Editing by Franklin Ball)
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