Crypto investor sues Binance U.S. exchange over stablecoin collapse
Binance exchange the U.S. and its CEO were sued on Monday by a U.S. investor who alleges the Cryptocurrency Exchange falsely marketed Terra USD, also known as UST, as a safe coin before the so-called stablecoin's price collapse last month.
Stablecoins are digital coins pegged to the value of traditional assets, in this case, the U.S. dollar, and are popularly known as safe havens in times of turmoil in Digital Asset markets. Nevertheless, Terra USD's price plunged last month, breaking its 1:1 dollar peg and contributing to a slump in other digital currencies like Bitcoin.
In the lawsuit against Binance exchange U.S. and Chief Executive Brian Shroder, Utah resident Jeffrey Lockhart said Binance falsely marketed Terra USD as "safe" and supported by a fiat currency, when in fact it was an unregistered security.
Lockhart alleged that the Binance exchange’s failure to register with the U.S. government as a securities exchange commission limits disclosure about assets traded on the platform, harming investors.
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"Binance and other exchanges were critical enablers of this devastating failure to comply with the securities laws," said Tibor Nagy of the law firm Dontzin Nagy & Fleissig, which represents Lockhart. "Crypto exchanges made massive profits by flouting securities laws and causing real harm to real people."
A Binance spokesperson said the Binance exchange is registered with the Financial Crimes Enforcement Network (FinCEN) - a part of the U.S. Treasury Department - and conforms with all applicable regulations.
"These assertions are without merit and we will defend ourselves vigorously," the spokesperson said in a statement, adding that the Binance Exchange will delist Terra USD, a choice made even before the lawsuit was filed.
Lockhart is looking to have himself and other investors who held Terra USD on the Binance exchange registered as a class.
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In a separate lawsuit filed in the year 2020, investors accused Binance exchange of selling unregistered coins and failing to register as an exchange or broker-dealer.
A federal judge in Manhattan dismissed that case in March, stating that the investors had waited too long after their losses to charge and that U.S. securities law did not apply because the Binance exchange was not a domestic exchange. The investors are still appealing.
Lockhart's lawsuit, by contrast, targets Binance Exchange's U.S. operating unit and comes just a few weeks after Terra USD's collapse.
This lawsuit comes after a bipartisan group of U.S. Senators last week proposed legislation to have the Commodity Futures Trading Commission (CFTC), instead of the Securities and Exchange Commission (SEC), play the primary role in regulating the digital currency.
The CFTC is generally seen as quite welcoming toward cryptocurrencies, as the SEC has argued whether such digital assets should be seen as securities.
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