Binance, NBA’s Jimmy Butler hit with class action lawsuit

Binance CEO Changpeng Zhao. Ben McShane—Web Summit Sports File via Getty Images

Just four days after the Commodity Futures Trading Commission filed a highly publicized case against Binance, the world’s largest cryptocurrency exchange is facing another high-profile legal challenge.

Late in the evening of March 31, Moscowitz Law Firm and Boies Schiller Flexner, the home of super-lawyer David Boies, filed a class-action lawsuit targeting Binance, its founder Changpeng Zhao (CZ) — the world’s leading spokesman for the crypto industry — and hoops star Jimmy Butler of Miami Heat.

Adam Moscowitz, founder and managing partner of the Moscowitz Law Firm, discussed the matter with Fortune shortly after filing, made in the Southern District of Florida.

The law firms previously joined to file a class action lawsuit against Voyager, which later went bankrupt, and two cases related to the failure of FTX. The first of the latter, filed in March, targeted eight celebrities who served as the exchange’s highly paid brand ambassadors, a list that included comedian Larry David, basketball players Shaquille O’Neal and Steph Curry, and football legend Tom Brady. In mid-March, Moscowitz Law and Boies Schiller sued eight compensated “influencers” for promoting FTT, FTX’s original coin. The lawsuit claims that the influencers are liable for customer losses on the collapsed coin because it qualified as an “unregistered security.”

The new action against Binance rests on the same basic allegation: that the exchange traded cryptocurrencies that are in effect unregistered securities, and that social media influencers paid by Binance illegally promoted those instruments. “This is a classic example of a centralized exchange, promoting the sale of an unregistered security,” the complaint states. The suit seeks damages of over $1 billion in total from the Binance companies and the influencers. “We have been investigating the same unreported security issues against Binance for over a year,” notes Moskowitz.

The complaint states that under relevant state securities laws, anyone who purchases unregistered securities is entitled to compensation equal to any losses they have suffered. The defendants have no obligation to prove that they were deceived or even influenced by social media posts or advertisements claiming the coins, only that they saw them. As Moskowitz told Fortune, “The statute clearly states that if an influencer promotes an unregistered security, and has a financial interest in doing so, the influencer may be liable to anyone who purchased the assets. The exchange that facilitates the trades will also be responsible.”

The plaintiffs are two Florida residents and one person from California, all of whom lost money trading coins promoted by Binance and the influencers. But the complaint estimates that the people eligible for compensation could number “in the millions.” The defendants are Binance’s US affiliate, Binance’s three main international entities, CZ itself, and three influencers. Besides Butler, the defendants at this stage are major crypto promoters Ben Armstrong, known as BitBoy Crypto, and Graham Stephan, who has 4.1 million subscribers on YouTube.

It is particularly notable that the complaint cites both Binance’s native token, BNB, and its associated program, which are little known to the public. The action makes it the case that CZ “burns” or eliminates BNB, reducing supply in an attempt to increase the price, an action that marks BNB as a security. It also details how Binance affiliates receive discounts on trades for investors they recruit and “click through their link” to buy and sell coins on the Binance platform. Therefore, Armstrong and Stephan were allegedly paid for the illegal promotion of unregistered securities, via affiliate kickbacks. Moskowitz told Fortune that it will add a number of other Binance influencers to the case in future filings.

The case is not just seeking compensation for Floridians who lost money. It is also plaintiff under California law. The case goes much further, citing CFTC allegations that Binance secretly and heavily marketed to customers across the United States, making all state residents who suffered losses eligible for compensation. The complaint doesn’t stop there: It includes a “global class” that includes “all persons and entities resident outside the United States”

Of course, it is not at all certain that the Florida court will consider BNB and other coins as unregistered securities. Moskowitz is encouraged that the SEC made that decision in actions against FTT and a recent case against Tron’s currency TRX.

“If we win on the unregistered IPO, there will be no doubt that Binance and the influencers are responsible,” Moscowitz said Fortune. “It’s ironic that FTX was going to be Voyager’s savior until their fraud was exposed, and now Binance is going to be the next savior. Given the cases in bankruptcy, this may be the last chance for victims to seek recovery from their losses from crypto fraud.”

The case is potentially a central issue. If the plaintiffs win, the social media cheerleaders who have done so much to fuel this populist phenomenon could retire, dealing a heavy blow to the cryptoverse.