• The SEC and Binance will face huge losses when the case goes to trial.

  • Legal experts weigh in on whether the settlement benefits both parties.

  • Gensler's crypto crackdown is entering a critical phase.

Gary Gensler has high hopes for the Binance deal.

Although three US government agencies Binance last November, Gensler and the US Securities and Exchange Commission chose to withdraw from the agreement.

Instead, the US Securities and Exchange Commission has upheld its lawsuit against the world’s leading crypto exchange and its former CEO, CZ.

The case is coming to a head just as the Biden administration appears to be softening its stance on crypto.

“The stakes for the SEC and Gensler in this case are extremely high given the growing political and public sentiment toward the crypto industry,” said Aaron Unterman, a former senior regulator at the Ontario Securities Commission in Canada. “It is unlikely that the SEC will have a clear victory in court.”

For three years, Gensler has argued that the digital asset industry is no different from other capital markets businesses. Under federal securities laws, crypto must be registered and regulated just like stocks and bonds.

In 2023, the U.S. Securities and Exchange Commission (SEC) accused Binance of illegally operating an unregulated exchange and offering unregistered “crypto asset securities” to investors.

Binance denies the allegations (as do Coinbase and Karken, which also filed separate lawsuits).

They argue that crypto is a completely new financial instrument that requires its own specialized laws and regulations.

On June 28, a US judge denied Binance’s request to dismiss the lawsuit and ruled that most of the litigation will continue.

“Any transaction may involve operational restrictions that may unduly burden Binance.”

- Alex Moore, Carrington Coleman

Last November, Binance paid a $4.3 billion fine and admitted to violating U.S. banking laws. While Binance is preparing for more legal trouble, the U.S. Securities and Exchange Commission has its own concerns.

Legal experts say the Binance case could set a precedent that will shape the SEC’s crypto policy in the years to come.

If the SEC loses, it could mean crypto platforms will be treated differently than traditional securities firms. That could prompt lawmakers to enact new laws that would set regulatory guidelines for the industry.

With so much at stake for both sides, the stage seemed set for a resolution. This often happens when the stakes are too high for both sides to bear.

The key to solving this is cost and that doesn't just mean money.

“Even if Binance could reach a settlement with a reasonable cash settlement, any settlement would likely involve operational restrictions that Binance may find too difficult to accept,” Alex More, a litigation attorney at the Carrington Coleman law firm in Dallas, told DL News.

“I don't think Gensler and the SEC will accept a settlement that isn't seen as a decisive victory.”

—Aaron Unterman, XReg Consultant

As for the SEC, they will likely insist that any solution include the need to register crypto assets.

“I don’t think Gensler and the SEC will accept a settlement that isn’t a decisive victory for the SEC,” said Unterman, now managing director of XReg Consulting in the Cayman Islands.

Reach a deal?

Meanwhile, other SEC targets like Coinbase and Consensys may have tougher defenses and choose to go to trial rather than reach settlements, legal experts say.

“The facts in the Coinbase case are more favorable than the facts in the Binance case, and I believe Brian Armstrong (Coinbase CEO) is willing to fight to the end in court,” Unterman said.