Binance, one of the world’s largest cryptocurrency exchanges, is facing significant legal challenges in Canada over allegations of violating securities laws. The Ontario Superior Court of Justice has certified a class-action lawsuit against the exchange, accusing it of selling crypto derivative products to retail investors without proper registration.
TLDR
- Ontario’s Superior Court of Justice has filed a class-action lawsuit against Binance for allegedly selling crypto derivative products to retail investors without proper registration, violating securities laws.
- The lawsuit seeks damages and rescission (cancellation) of these allegedly unlawful derivative trades.
- The court ruled that crypto derivatives contracts are considered securities or derivatives under current regulations, and Binance’s marketing of these contracts qualifies as securities distribution requiring registration.
- Previously, Binance had committed to cease operations in Ontario after warnings from the Ontario Securities Commission (OSC) in 2021, but later rescinded that commitment.
- Despite Binance announcing its departure from Canada in May 2023, authorities like the OSC have continued investigating the exchange for potential regulatory breaches.
The lawsuit, filed by plaintiffs represented by Christopher Lochan and Jeremy Leeder, alleges that Binance’s actions violated the Ontario Securities Act (OSA) and federal law. The plaintiffs argue that Binance sold crypto derivatives products, which are considered securities or derivatives under current regulations, without adhering to necessary registration requirements and prospectus filings.
The court’s decision to certify the class action is a significant development, as it recognizes that the marketing and distribution of these crypto derivative contracts by Binance qualify as securities distribution, subject to regulatory oversight.
The court stated, “The plaintiffs have met the evidentiary burden…establishing some basis in fact that the issues raised in the four liability questions are common across the class.”
The lawsuit seeks not only damages but also the rescission (cancellation) of these allegedly unlawful derivative trades. If successful, this could have far-reaching implications for Binance and the broader crypto industry, as it would set a precedent for the treatment of crypto derivatives under securities laws.
Binance sued in Canada for securities law violations
Even after @binance announced its departure from Canada in May 2023, local authorities have continued to investigate the exchange.https://t.co/LpdqjIx7ao
— Helen Partz (@coindanslecoin) April 23, 2024
Binance’s troubles in Canada are not new. The exchange had previously faced scrutiny from the Ontario Securities Commission (OSC) and committed in mid-2021 to cease dealings with Canadian investors and wind down its operations in Ontario by early 2022. However, in a surprising move, Binance later rescinded that commitment, claiming that its authorization as a money services business allowed it to continue operating in the province.
The court rejected Binance’s argument that it merely facilitated trades between investors, likening the relationship to that between a customer and a store rather than independent parties. This ruling further strengthens the case that Binance’s activities constituted securities distribution subject to regulatory oversight.
Despite Binance announcing its departure from Canada in May 2023, authorities like the OSC have continued to investigate the exchange for potential regulatory breaches.
The court motion states, “The OSC’s investigation into the Defendants is ongoing,” indicating that more legal challenges could be on the horizon for Binance in Canada.
The class-action lawsuit in Ontario is not an isolated incident for Binance. The exchange has faced regulatory scrutiny in various jurisdictions, including the United States, where it has been investigated by multiple state regulators and the Securities and Exchange Commission (SEC) for potential violations of securities laws.
As the crypto industry continues to grow and mature, regulatory oversight and compliance with securities laws have become increasingly important. The Ontario court’s decision to certify the class action against Binance serves as a reminder that crypto exchanges and platforms are not exempt from these regulations, particularly when dealing with products that resemble traditional securities or derivatives.
