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Judge Jackson Criticizes Both Parties in Latest Episode of the SEC vs. Binance Court Drama

Judge grills Binance and SEC during a court hearing

A recent court hearing saw both the U.S. Securities and Exchange Commission (SEC) and leading crypto exchange Binance come under fire. The legal face-off, reported on January 22nd, revolves around the SEC’s ongoing charges against Binance. Matthew Gregory, Binance's attorney, raised concerns about the SEC’s vague regulatory framework for cryptocurrencies, arguing that the industry faces mixed messages. 

 Matthew Gregory:

“The SEC to this day has been talking out of both sides of its mouth when it comes to crypto tokens … They’re telling the industry (to) come in and register, while simultaneously with their other hand holding the door closed and preventing any viable path to do that.”

On one side, there's an invitation to register, while on the other, seemingly insurmountable barriers hinder compliance. This hearing follows hot on the heels of a similar legal skirmish involving Coinbase, another cryptocurrency giant, underscoring the intensifying regulatory scrutiny in the crypto sector.

Binance's legal hurdles and SEC's regulatory challenges

The courtroom drama spotlighted Binance's legal strategy against the SEC's accusations. Central to their defense was the criticism of the regulatory body's approach towards cryptocurrencies. Binance’s team, led by Gregory, highlighted the ambiguity surrounding the application of the Howey Test, traditionally used to identify securities, to the crypto assets. 

The SEC, however, maintained that this test is flexible enough for financial products, emphasizing the lack of a clear-cut boundary between securities and non-securities. The core of the SEC's lawsuit against Binance and its ex-CEO, Changpeng Zhao, revolves around allegations of operating unregistered securities exchanges and misleading representations concerning Binance.US's trading controls.

Judge Jackson's critical stance on Binance's defense

Judge Amy Berman Jackson, presiding over this high-stakes legal battle, didn't hold back her skepticism of Binance's arguments. Reuters reported that she appeared unimpressed with Binance's reliance on the major questions doctrine, a legal concept suggesting that certain regulatory actions need Congress's explicit approval. 

Fortune's Leo Schwartz conveyed Judge Jackson's resistance to Binance's narrow interpretation of securities offerings, noting her pointed remark: 

"You're being a little too cute." 

She further critiqued a Binance analogy, comparing cryptocurrency products to baseball cards, a comparison she found lacking in substance. Additionally, crypto lawyer Jeremy Hogan noted the judge's disapproval of Binance's 'fair notice' defense, which argued for prior SEC warnings before charges.

The SEC's position and Judge Jackson's queries

Judge Jackson didn’t just focus her critical eye on Binance; the SEC's arguments also came under her scrutiny. During the hearing, as reported by Blockworks journalist Casey Wagner, she questioned the SEC’s classification of various cryptocurrencies, including Binance's own BNB and its largely inactive BUSD stablecoin, as securities.

Her inquiry didn't stop there. She challenged the SEC's stance, asking pointedly:

 "If it’s so obvious that these are securities, where has the [SEC] been?" 

This question casts doubt on the SEC's delayed action in a rapidly growing industry.

In response, an SEC lawyer clarified that under the Howey Test, regulators aren’t obliged to issue reminders about potential violations. However, Judge Jackson expressed concerns about the implications for third-party tokens that Binance handles, foreseeing complex legal challenges ahead. Her remarks highlight the ongoing debate over the classification and regulation of cryptocurrency assets.