Binance US stock exchange sued by crypto investor over stablecoin collapse

NEW YORK, June 13 (Reuters) – Binance US and its CEO were sued on Monday by a US investor who claims that the cryptocurrency exchange incorrectly marketed Terra USD as a safe asset ahead of the so-called stablecoin’s value collapse last month.

Stablecoins are digital tokens linked to the value of traditional assets, such as the US dollar, and are popular as a safe haven in times of turmoil in crypto markets. But Terra USD’s value plummeted last month, breaking the 1: 1 dollar stick and contributing to a fall in other cryptocurrencies such as Bitcoin. read more

In the lawsuit against Binance and CEO Brian Shroder, Jeffrey Lockhart, a resident of Utah, said that Binance incorrectly advertised Terra USD as “safe” and supported by fiat currency, when in fact it was an unregistered security.

Lockhart said Binance’s failure to register with the US government as a securities exchange limits the disclosure of assets traded on the platform and harms investors.

“Binance and other exchanges were critical enablers for this devastating failure to comply with the Securities Act,” said Tibor Nagy of law firm Dontzin Nagy & Fleissig, which represents Lockhart. “Crypto exchanges made a huge profit by ignoring securities laws and causing real harm to real people.”

A Binance spokesman said the exchange is registered with the Financial Crimes Enforcement Network (FinCEN) – a unit of the US Treasury Department – and complies with all applicable regulations.

“These allegations are unfounded and we will defend ourselves vigorously,” the spokesman said in a statement, adding that the exchange will delist Terra USD, a decision made before the lawsuit was filed.

Lockhart seeks to get itself and other investors who bought Terra on Binance registered as a class.

In a separate lawsuit in 2020, investors accused Binance of selling unregistered tokens and failing to register as a stock exchange or broker-dealer.

A federal judge in Manhattan dismissed the case in March, stating that investors had waited too long after the losses to sue and that US securities law did not apply because Binance was not a domestic stock exchange. Investors are appealing. read more

Lockhart’s lawsuit, however, is aimed at Binance’s US entity and comes just weeks after Terra USD’s collapse.

His case comes after a two-part group of US senators last week proposed legislation to allow the Commodity Futures Trading Commission (CFTC), not the Securities and Exchange Commission (SEC), to play a key role in regulating crypto.

The CFTC is generally seen as more friendly to cryptocurrencies, as the SEC has found that cryptocurrencies should be viewed as securities. read more

Cryptocurrencies continued to slide on Monday, with Bitcoin reaching an 18-month low and No. 2 token ether falling as much as 18%. read more

Reporting by Luc Cohen in New York; Edited by Noeleen Walder and David Evans

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