The US Supreme Court rejected Binance’s attempt to avoid a lawsuit over cryptocurrencies

Written by Jonathan Stempel

(Reuters) – The U.S. Supreme Court on Monday rejected a bid by Binance and its founder Changpeng Zhao to avoid a lawsuit by investors who accused the world’s largest cryptocurrency exchange of illegally selling unregistered tokens that have lost much of their value.

The justices refused to hear Binance and Zhao’s appeal of the lower court’s decision to allow the proposed class action to proceed. The 2nd US Circuit Court of Appeals in Manhattan ruled that local securities laws can apply even though Binance is not a US company because token purchases become irrevocable in the US once investors pay for them.

In its March 2024 ruling, the Second Circuit cited Binance’s use of local servers from Amazon, concluding that the lawsuit could proceed.

Binance, which was founded in China, has argued that it should not be subject to US securities laws. CEO Richard Ting told Reuters in December that Binance had not yet decided where its headquarters should be located, years after the exchange indicated a decision was imminent.

Investors who purchased ELF, EOS, FUN, ICX, OMG, QSP and TRX tokens through Binance starting in 2017 have accused the exchange of failing to warn of the “significant risks” of the tokens, and sought in a class action lawsuit to recover what they paid.

Binance argued that US securities laws do not apply because its exchange is located outside the country. It cited the 2010 Supreme Court decision, Morrison v National Australia Bank, which limited the extraterritorial scope of those laws.

In its appeal to the Supreme Court, Binance said the Second Circuit misapplied the Morrison decision by allowing liability at multiple stages of securities transactions and in multiple countries.

This essentially revived a standard rejected by the Supreme Court under which domestic securities laws could apply if underlying conduct in a transaction occurred or the transaction had effects in the United States, the exchange said.

Binance said its appeal also addressed “an issue of global importance to financial markets: whether (and if so, when) US securities laws extend to foreign trading platforms like Binance.com.”

The case is unrelated to Binance’s November 2023 guilty plea and fine of more than $4.3 billion for violating anti-money laundering and federal sanctions laws. Zhao was sentenced to four months in prison in a related case and was released in September.

(Reporting by Jonathan Stempel in New York; Editing by Will Dunham)