A federal judge in Manhattan has ruled against Binance“s attempt to shift a significant securities lawsuit into private arbitration. This decision allows a class action lawsuit, which alleges that Binance sold unregistered digital tokens to US investors, to proceed in a public court.
The ruling, issued by US District Judge Andrew L. Carter Jr., confirmed that Binance did not adequately inform users about changes made to its Terms of Use in February 2019, which included an arbitration clause and a restriction on class actions. The judge noted that customers who opened accounts between September 2017 and April 2018 were not notified of these updates.
The court highlighted that merely amending terms online does not constitute proper notification, stating that users are not expected to routinely check for unilateral changes to contractual agreements. Consequently, the arbitration clause could not be applied retroactively to claims originating before the clause was introduced.
Judge Carter further clarified that under California contract law, any unilateral modifications that do not explicitly address previous claims cannot restrict disputes related to earlier conduct. The judge pointed out that Binance also failed to enforce its class-action waiver effectively, as the language in the contract was deemed unclear and was interpreted against Binance, the drafter of the document.
As the case progresses, it will focus on whether certain tokens listed on Binance can be classified as securities under US law. This lawsuit is part of a broader wave of legal actions initiated in April 2020 against various cryptocurrency exchanges and token issuers amid increased scrutiny of token sales.
In a related development, Binance is currently facing heightened scrutiny from lawmakers in Washington. A coalition of 11 US senators has called for a federal review of the exchange”s compliance with sanctions and anti-money laundering regulations, citing allegations of significant sums of digital assets being moved to Iranian-linked entities.
Additionally, Senator Richard Blumenthal has launched a congressional inquiry into Binance”s compliance controls. Despite these challenges, Binance has denied all allegations of wrongdoing, asserting that it actively reports suspicious activities and restricts access to users linked to Iran.
While the Securities and Exchange Commission previously sought to drop its enforcement action against Binance, the private class action lawsuit remains active and is poised to challenge the regulatory landscape surrounding cryptocurrency exchanges.
