The United States Supreme Court dismissed Binance and Changpeng Zhao’s appeal against a March 2024 decision allowing a class action suit. The Court upheld the 2nd Circuit’s ruling, noting that domestic laws bound the cryptocurrency exchange.
According to reports, the Appellants contended the 2nd U.S. Circuit Court of Appeals in Manhattan’s decision, highlighting domestic laws applied to token sales within the U.S.
Supreme Court dismisses Binance and Zhao’s Appeal against a class action suit
The Supreme Court enforced the 2nd Circuit Court’s decision, allowing a class action suit filed in 2020 against the exchange to proceed. Investors who purchased ICX, OMG, QSP, TRX, FUN, EOS, and ELF in 2017 argued in the lower Court that token purchases occurred within the United States and domestic laws were applicable in determining the exchange’s liability.
The investors alleged that Binance failed to warn its customers about the risks associated with the digital tokens before they made their purchases as required by the US domestic securities laws.
Binance countered these arguments, emphasizing that it was not a United States entity since its headquarters were not within the country. The exchange relied on the 2010 Supreme Court decision of Morrison vs National Australia Bank, which limited the application of domestic laws on extraterritorial entities.
In March 2022, Andrew Carter, a U.S. District Judge, dismissed the investor’s application, stating that the case was filed out of time. The Judge also contended that domestic laws could not apply in the matter despite Binance having used Amazon computer servers and Ethereum blockchain computers within the country.
In March 2024, the 2nd Circuit Court of Appeals in Manhattan reportedly revived the suit against the exchange. In a 3-0 decision, the Court ruled that despite Binance not being registered as a US company, domestic laws remained applicable since the digital tokens became irrevocable in the country once the traders purchased them.
Circuit Judge Alison Nathan highlighted that Binance’s use of domestic servers to host its platform implicated the company. The appeal court also added that investors could pursue complaints arising from the token purchases made within a year before they sued. The 2nd Circuit Court, therefore, allowed the class action suit against the cryptocurrency exchange.
Binance claims appeal raised issues of global significance
Dissatisfied with the decision, Binance filed an appeal before the Supreme Court, challenging the lower court’s decision. Binance pleaded that the 2nd Circuit had misapplied the Morison precedent by finding the exchange liable in multiple stages of securities transactions.
The company argued the lower court had revived an overturned standard by the Supreme Court that allowed domestic security law to apply if the underlying actions in the transaction had effects in the United States.
The exchange also highlighted the issue before the Supreme Court addressed a question of global significance for financial markets. The exchange added the Supreme Court needed to elaborate on instances where U.S. securities laws bound foreign trading platforms such as Binance.com.
The crypto exchange pleaded guilty in a separate criminal suit in February 2024 to violating federal anti-money laundering and sanction laws. The prosecutors in the matter alleged that Binance supported the sale of child sex abuse materials. They added the exchange was the largest recipient of ransomware proceeds. The exchange later issued a statement acknowledging the charges, adding that it had upgraded its Know Your Customer(KYC) protocols to curb money laundering and other illegal activities on the platform.
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