Case Summary
In its June 5, 2023 initial complaint (PDF), the SEC brought 13 counts against Binance, its U.S. affiliates BAM Trading and BAM Management, and founder Changpeng Zhao. It alleged that defendants operated unregistered securities exchanges, broker-dealers, and clearing agencies; offered unregistered securities through BNB, BUSD, and investment programs; and misled investors about Binance.US’s safeguards against market manipulation. The complaint also alleged concealed control by Binance and Zhao, commingling of customer assets, and wash trading by a Zhao-controlled firm. The SEC sought injunctions, disgorgement, and civil penalties.
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In her June 28, 2024 opinion, Judge Amy Berman Jackson granted dismissal in part: The SEC inadequately pleaded securities claims involving third-party secondary sales of BNB, BUSD, and Simple Earn. Applying the Howey investment-contract test, she allowed claims involving Binance’s own BNB sales, BNB Vault, staking, registration violations, Zhao’s control-person liability, and the BAM entities’ alleged fraud to proceed. This was a pleading-stage ruling, not a final determination of liability. The case ultimately ended on May 29, 2025, through a joint dismissal with prejudice, preventing the SEC from refiling the same claims; the SEC described its decision as discretionary and policy-based, rather than a judicial determination on the merits.
Lexicon Labs Amicus Brief
November 20, 2023
Our Position
Like other crypto-related litigation, this case requires the simultaneous examination of a finance question (Are the secondary market crypto purchase transactions investments?) and a legal question (Are such transactions investment contracts?) Thus, proper application of the law warrants the interdisciplinary lens of finance. Determining the boundaries of investor protection, after all, would be a difficult task unless a consensus can simultaneously be established on the definition of the term investing.
We answer the finance question with a “no,” and the legal question with a “yes.” At first glance, it may seem implausible to reach the legal conclusion of an investment contract in the absence of both an investment (once the term investment is properly defined), and a contract. That potential discomfort, if any, fully goes away under a legal refinement of Howey. More specifically, the refinement proposed in this brief is based on fundamental principles of finance (“Modified Howey”), an approach that provides a clear bridge from finance to law. Under this proposed refinement, we reject the popular, but ultimately incorrect view that Howey is a conjunctive test, necessitating the satisfaction of all four prongs, at all times. Instead, we contend that Howey is meant to be a flexible framework that becomes relevant depending on both the type of asset and the circumstances under which the asset is sold.
Basically, under the modified Howey approach, the flexibility bestowed to the test by the Supreme Court is not just how many fact patterns it can be applied to, but how it can be applied. Under the modified Howey approach, the Howey test turns into a set of toggles that can be turned on or off based on the economic realities of the transaction.