Circle argues that stablecoins like BUSD and USDC are not investment contracts and fall outside SEC jurisdiction.
In a significant development in the ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and major cryptocurrency exchange Binance, stablecoin issuer Circle has intervened, asserting that stablecoins should not be categorized as securities under existing financial regulations.
This comes after earlier this year, Binance faced several legal accusations from regulators with the charges based on the exchange’s role in enabling transactions in multiple cryptocurrencies that the SEC claimed constituted unregistered securities.
Circle Challenges SEC’s Categorization of Stablecoins
Circle’s argument centers around the premise that stablecoins like BUSD and its own USDC, designed for payments, are not investment contracts and, therefore, fall outside of SEC jurisdiction.
“Payment stablecoins, on their own, do not have the essential features of an investment contract,” stated Circle in its filing. “Decades of case law support the view that an asset sale — decoupled from any post-sale promises or obligations by the seller — is not sufficient to establish an investment contract.”
The filing also argued that users of these stablecoins do not expect to gain any profits from individual purchases. This argument holds weight, particularly when considering the SEC’s accusation that Binance promoted BUSD by claiming it offered yield through reward programs.
SEC’s Lawsuit Against Binance
The SEC’s case against Binance involves them alleging that the cryptocurrency exchange had enabled transactions in cryptocurrencies such as Solana’s SOL, Cardano’s ADA, and the stablecoin BUSD. According to the agency, these cryptocurrencies are unregistered securities, leading to the charges against Binance.
The SEC argued that BUSD was presented as an investment contract because of Binance’s promotional activities, which included offering yield through reward programs. In response, Binance, its U.S. arm, and its CEO Changpeng “CZ” Zhao filed a motion to dismiss the SEC’s case, claiming that the regulator exceeded its authority by regulating digital assets without proper congressional authorization.
Circle’s involvement, referred to as an amicus curiae or “friend of the court” brief, was backed by its Chief Legal Officer, Heath Tarbert, a former chair of the Commodity Futures Trading Commission, another federal regulator that is simultaneously pursuing legal action against Binance.