Binance US and its CEO Brian Schroder are facing a class-action lawsuit over the exchange’s marketing and sale of Terra/LUNA, according to a complaint filed in federal court on Monday. A wide group of investors is accusing the crypto exchange of falsely advertising Terraform Lab’s algorithmic stablecoin as “safe,” harming investors in the wake of the recent UST collapse.
The lawsuit argues that Binance US failed to comply with state and federal securities laws by touting an unregistered security and illegally acting as an unlicensed broker-dealer.
The filing lays out a detailed and comprehensive explanation of algorithmic stablecoins, Binance’s operations, the Luna/UST ecosystem, Anchor protocol, and the collapse of Terra.
Central to the suit is the allegation that Binance US falsely advertised and sold UST to its customers, claiming that the so-called stablecoins were “safe” assets that were “fiat-backed,” both of which have proven not to be true in recent months.
Additionally, the complaint offers an extensive argument that Binance US illegally listed, advertised, and sold the tokens issued by Singapore-based Terraform Labs (TFL) because UST is, and should be considered, an unregistered security.
Finally, the suit alleges, in stark language, that Binance US’s entire business model relies on promoting high-risk trading of illegal products offered by bad actors with minimal disclosure:
“Binance U.S.’s failure to comply with the securities laws critically enables bad actors like TFL to harm investors. In fact, [its] business model is premised on enabling these bad actors: Binance U.S. profits from every trade, and therefore has a stark incentive to sell crypto assets irrespective of their compliance with the securities laws.”
“From Binance U.S.’s perspective, the less disclosure, the better, as more disclosure about the riskiness of crypto assets will predictably lead investors to trade certain assets less and reduce transaction volume and Binance U.S.’s astonishing profits,” (our emphasis).
Binance has more issues than just UST related lawsuits
Binance US is a subsidiary of the Cayman-registered Binance Holdings Ltd. Both have faced legal and regulatory scrutiny in several different jurisdictions since the latter’s founding in 2017.
- Bloomberg has reported active Department of Justice and Internal Revenue Service investigations into Binance US for money laundering and tax evasion violations.
- In June, the Securities and Exchange Commission launched a probe of the firm’s 2017 ICO sale.
- Binance has been banned from all UK operations by the Financial Conduct Authority. Canadian, German, Japanese, and Thai regulators have also warned Binance and its customers about unregistered or illegal operations in their respective countries.