KEY POINTS

  • The lawsuit claims Binance’s failure to disclose UST and LUNA’s risks to potential investors was not incidental
  • Says that it was intentional and fundamental to Binance’s long-term strategy
  • It claims that Binance U.S.’s business model is premised on illegally enabling the sales of unregistered securities 

A class-action lawsuit has been filed against Binance.US on Tuesday alleging that the cryptocurrency exchange misled consumers about the safety of Terra’s stablecoin UST and native token LUNA.

The suit claimed that the crypto exchange violated federal law both by selling UST and LUNA, which according to the plaintiff, are securities that should have registered with the U.S. Securities and Exchange Commission (SEC) and by operating as an unregistered securities exchange. The lawsuit was filed in the U.S. District Court for the Northern District of California by Roche Freedman and Dontzin Nagy & Fleissig on behalf of an investor group.

Last month, the UST and LUNA collapse wiped out some $40 billion in value from the cryptocurrency market.

The plaintiffs cited Binance advertisements that, in the months preceding UST’s crash, touted the stablecoin as “safe” and “fiat-backed,” claims which the plaintiff’s attorneys argued were demonstrably false.

"UST was advertised and sold to investors as a “safe” asset that could be used to earn substantial returns, including in the form of interest. The respective prices of UST and LUNA both depended upon, and continue to depend upon, the efforts and success (or failure) of TFL," the complaint read.

As per the suit, Binance’s failure to disclose UST and LUNA’s risks to potential investors was not incidental, but intentional and fundamental to Binance’s long-term strategy.

“Binance U.S.’s business model is premised on illegally enabling the sales of unregistered securities to as many U.S. investors as possible, as often as possible,” read the complaint.

The complaint further said that if Binance U.S. wants to enjoy the many benefits of operating in the U.S.market, it must comply with U.S. federal and state securities laws.

It further said that even though UST and LUNA are both securities, neither is registered with the SEC nor any state regulator.

The question of which cryptocurrencies the U.S. government considers to be securities has still not been answered completely making it difficult for the crypto industry to stick to the regulations.

A representations of cryptocurrencies in this illustration taken, January 24, 2022.
A representations of cryptocurrencies in this illustration taken, January 24, 2022. Reuters / Dado Ruvic
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