U.S. SEC Moves to Dismiss Binance Lawsuit, Signaling Shift in Crypto Regulatory Approach

On May 29, the U.S. Securities and Exchange Commission (SEC) and Binance, the world’s largest cryptocurrency exchange by trading volume, jointly filed a motion to dismiss a high-profile civil lawsuit initiated by the regulator in June 2023. The filing, submitted to the U.S. District Court for the District of Columbia, marks a significant step in resolving a nearly two-year legal dispute and reflects a broader shift in the SEC’s approach to regulating the crypto industry under new leadership. The dismissal, requested with prejudice to prevent refiling, underscores the agency’s intent to move away from enforcement-heavy tactics toward a more collaborative regulatory framework.

Background of the SEC-Binance Lawsuit

The SEC’s lawsuit, filed on June 5, 2023, targeted Binance Holdings, BAM Trading Services, BAM Management US Holdings, and former CEO Changpeng Zhao. The regulator filed 13 charges against Binance, primarily alleging that the exchange operated as an unregistered securities exchange, broker, and clearing agency; violated securities laws through the sale of crypto assets like BNB and BUSD, as well as related products; secretly allowed high-value U.S. clients to use the Binance.com platform; falsely claimed that Binance.US operated independently; engaged in manipulative trading through affiliated entities like Sigma Chain to artificially inflate trading volume; and transferred customer assets to entities controlled by Changpeng Zhao. These violations reportedly generated at least $11.6 billion in revenue for Binance.

In November 2023, Binance and Zhao reached a separate settlement with the U.S. Department of Justice, agreeing to pay a $4.3 billion fine and admitting the company violated sanctions regulations, operated as an unlicensed money transmitter, and failed to implement adequate anti-money laundering measures. As part of the agreement, Zhao stepped down as Binance’s CEO and pleaded guilty to money laundering charges. He was later sentenced to four months in prison in April 2024.

The case was part of a broader wave of enforcement actions under former SEC Chair Gary Gensler, who took a stringent stance on crypto firms. The SEC also pursued lawsuits against Ripple Labs, Coinbase, and Kraken, alleging similar violations, all of which have now been dismissed or settled. A partial victory for Binance came in June 2024, when a U.S. federal court granted Binance and Zhao’s motion to dismiss charges tied to secondary BNB sales and Simple Earn. This decision set the stage for subsequent pauses in the litigation, with joint motions filed in February and April to delay proceedings as the SEC reassessed its strategy.

The Joint Dismissal Motion

The latest filing, dated May 29, cites the SEC’s newly formed Crypto Task Force as a key factor in the decision to dismiss the case. Led by Commissioner Hester Peirce, the task force is tasked with engaging stakeholders to develop “sensible” rules and clearer registration pathways for crypto firms. The joint stipulation notes that the task force’s work “might impact and facilitate the potential resolution of this litigation,” with the SEC exercising its discretion to drop the lawsuit as a matter of policy. The dismissal with prejudice ensures that the SEC cannot refile the same claims, providing Binance with legal finality.

Binance celebrated the development on X, calling it a “huge win for crypto” and thanking President Donald Trump and SEC Chair Paul Atkins for “pushing back against regulation by enforcement”. On his X account, Zhao posted an image of former SEC Chair Gary Gensler depicted as a clown with a red nose, captioned, “Crypto is still here.”

Broader Context: A Shift in Regulatory Winds

This ruling aligns with a series of recent SEC decisions to terminate enforcement actions against major crypto firms, including Coinbase, Consensys, Robinhood, and Gemini. The shift follows Gary Gensler’s departure and the nomination of Paul Atkins, a known crypto advocate, as SEC Chair by President Trump. Atkins has criticized regulatory uncertainty in the crypto space and signaled that the SEC’s approach to crypto will pivot toward clear regulatory guidelines.

The SEC’s change in stance coincides with legislative progress. The GENIUS Act, the first U.S. bill to regulate stablecoin issuance, passed a key Senate cloture vote, marking a significant step forward. Additionally, in early May, the House introduced a crypto regulatory draft based on the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House last year but stalled in the Senate. The draft aims to clarify the roles of the SEC and the Commodity Futures Trading Commission (CFTC) in overseeing digital assets, addressing long-standing debates about which tokens are securities or commodities.

Binance’s Legal and Market Position

The resolution signals the end of Binance’s regulatory challenges in the U.S. Under current CEO Richard Teng, Binance has prioritized compliance. However, the exchange continues to face scrutiny in regions like France, where authorities are investigating potential money laundering and tax fraud between 2019 and 2024 in France and other EU countries.

Despite these challenges, Binance remains a dominant force in the crypto market. According to Binance’s year-end annual report, the exchange continues to lead in trading volume, processing over $10 trillion in spot and derivatives trades by the end of 2024, with registered users surpassing 250 million. As of press time on May 29, Binance’s native token, BNB, traded at approximately $672, down 1.5% in the past 24 hours, showing no significant positive impact from the news.

Implications for the Crypto Industry

The SEC’s decision to dismiss the Binance lawsuit is a pivotal moment for the crypto industry, signaling a potential end to the era of aggressive enforcement that defined the Gensler years. Analysts suggest that the Crypto Task Force’s stakeholder engagement could lead to clearer regulations, fostering innovation while addressing concerns about illicit activity. SEC’s shift may reflect a view that most cryptocurrencies are not securities, potentially bolstering support for numerous altcoin ETFs awaiting SEC approval.

As the SEC pivots toward a more collaborative regulatory approach, the crypto industry awaits further clarity from the Crypto Task Force and potential legislative reforms. For Binance, the dismissal strengthens its position as a market leader. For the broader crypto industry, the dismissal marks a transition toward a more crypto-friendly regulatory approach. The coming months will be critical in shaping the future of crypto oversight in the U.S., with Binance’s case serving as a bellwether for the industry’s regulatory path.