The lawsuit also states that Binance violated federal law by offering UST and LUNA cryptocurrencies for sale. Buyers were not warned of the risks, and the securities should’ve been registered with the SEC.
A 72-page document describing each token’s discrepancies was filed on Monday in the Northern District of California. Furthermore, Binance US was accused of conflict of interest in selling the tokens as its global parent had earlier invested in Terraform Labs, creator of UST and LUNA.
The lawsuit is the first significant attempt by investors to utilize the American federal system for justice in the backdrop of the striking collapse of the tokens last month that errored $40 billion in value.
Over 2,000 investors claim that Binance U.S. was the “actual seller,” and the exchange had earlier promoted the tokens, a few months preceding the crash, as “safe” and “fiat-backed” in its advertisements which is demonstrably false.
The legal document reads:
“Binance U.S. profits from every trade, and therefore has a stark incentive to sell crypto assets irrespective of their compliance with the securities laws”
Even though action on cases involving cryptos has been enforced earlier, like the crackdown on ICOs (Initial Coin Offerings) or the current dispute with Ripple, exchanges or platforms listing the actual cryptocurrencies haven’t had to suffer any consequences yet.
It is also still unclear which securities the U.S. law considers tradeable securities. A Senate bill was proposed last week prohibiting the sale of stablecoins not having 100% fiat backing, like UST.