How an Appeals Court Ruled on an Aspiring Class-Action Lawsuit Against Binance

A federal appeals court ruled last week that Binance needs to face a putative class-action lawsuit from a group of U.S.-based crypto investors who allege the exchange allowed them to buy and trade unregistered securities in the form of certain cryptocurrencies. The ruling doesn’t make a determination on whether the tokens are indeed securities or not, but it’s significant in broader securities cases nonetheless.

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The narrative

An appeals court revived a putative class-action lawsuit filed by a group of crypto investors against Binance last week, ruling that a district judge had erred in dismissing the case as being filed in the wrong jurisdiction and after the statute of limitations had expired.

Why it matters

Binance spent a few years claiming it was headquartered nowhere, an argument the appeals court judges did not find compelling. The judges ruled that domestic securities laws still apply to transactions on exchanges based outside the U.S., which will have far-reaching implications (for example: the U.S. Securities and Exchange Commission’s suit against the exchange). It’s also worth noting that this is an appeals court ruling, giving it greater weight (as a precedent) than a mere district court ruling.

Breaking it down

Last week, an appeals court ruled that a crypto exchange, even if it says it isn’t based in the U.S., may still be subject to U.S. laws if there’s enough of a connection to the U.S. In a putative class action lawsuit filed against global crypto exchange Binance, that nexus turned out to be just sufficient enough that a trio of judges found a group of crypto investors had enough standing to bring a lawsuit against the exchange.

There were two main aspects to the ruling. One addresses timeliness, while the other addresses extraterritoriality (a word I have, so far, been unable to pronounce).

Judges Pierre N. Leval, Denny Chin and Alison J. Nathan applied another court precedent, Morrison v. National Australia Bank, to say that the factors that matter are where the users placed the trades, where they paid for them and where they took on the terms of service – in the case of the plaintiffs in this suit, that’s within…