Terra/UST Cryptocurrency Investors Sue Binance U.S.

Boutique litigation firm Roche Freedman has been named as co-counsel for a class action lawsuit filed June 13 against cryptocurrency trading platform Binance U.S. The firm was also co-counsel on a similar 2020 class action suit against Binance U.S.’s parent company, Binance, that was dismissed in March. Both cases revolve around U.S. securities regulations and what those regulations do or do not allow, as well as exactly what types of transactions those laws cover. currently ranks Binance as the world’s largest crypto exchange by far, as gauged by both 24-hour volume and weekly visits.

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The investor class in the newer suit purchased crypto coin Terra USD (UST) through Binance U.S. The supply of algorithmic stablecoin UST was supposed to be determined by demand through a dual token mechanism with Terra’s volatile asset called LUNA. However, in May UST infamously lost its peg to the U.S. dollar; the subsequent systemwide meltdown of Terra wiped out over $40 billion of value in just seven days (May 7-13).

In the March dismissal of the class action against Binance, U.S. District Judge Andrew Carter held that the trades at issue were not covered by federal securities laws because the company is decentralized (read, non-U.S.) and because the investors failed to prove that their trades were U.S. transactions. The complaint in the new class action alleges that California-based subsidiary Binance U.S. is a de facto U.S. exchange or broker-dealer because it receives buy and sell orders from account holders and serves as the counterparty in all transactions. The suit says the platform flaunts its refusal to register as an exchange with the U.S. Securities and Exchange Commission (SEC). In addition, the case alleges the crypto platform used deceptive marketing that misrepresented UST as a safe investment backed by fiat currency.

For its part, Binance U.S. argues it is appropriately registered with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and that it complies with FinCEN regulations. According to Roche Freedman, if the current suit is successful, investors who lost money on Binance U.S. trades involving other cryptocurrencies potentially could assert the same claims as UST investors who purchased through Binance U.S.