SECURITIES AND EXCHANGE COMMISSION v. BINANCE HOLDINGS LIMITED et al Document 192

District Of Columbia District Court
Case No. 1:23-cv-01599-ABJ-ZMF
Filed December 12, 2023

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Page 1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
No. 1:23-cv-01599-ABJ-ZMF
BINANCE HOLDINGS LIMITED,
BAM TRADING SERVICES INC.,
BAM MANAGEMENT US HOLDINGS
INC., AND CHANGPENG ZHAO,
Oral Argument Requested
Defendants.
Reply In Support Of Joint Motion To Dismiss Claims
Against Defendants Binance Holdings Limited And Changpeng Zhao
Page 2 TABLE OF CONTENTS
Page
INTRODUCTION ........................................................................................................................
ARGUMENT ........................................................................................................................
I.
The SEC Fails To Plausibly Allege That Any Token, BNB Vault, Or Simple
Earn Is A “Security.” (Most Of Count 1 And All Of Counts 2–3, 5–12) .............. A.
B.
C.
The SEC’s Interpretation Defies The Plain Text Of The Phrase
“Investment Contract” And The Governing Howey Test. .......................... 1.
An Investment Contract Requires A Contract. ...............................
2.
An Investment Contract Requires An Investment Of Money
Into A Common Enterprise. ............................................................
3.
Precedent Mandates A Transaction-By-Transaction
Analysis...........................................................................................
4.
The SEC’s ICO Cases Reinforce Defendants’ Position. ................
5.
The SEC’s Position Lacks Any Coherent Limiting
Principle. .........................................................................................
The SEC Has Not Plausibly Alleged Any Investment Contract. .............. 1.
BNB ..............................................................................................
2.
BUSD ............................................................................................
3.
The Third-Party Tokens ................................................................
4.
BNB Vault And Simple Earn ........................................................
The Major-Questions Doctrine Forecloses The SEC’s Claims. ...............
II.
The SEC’s BNB Offering Claim Is Time-Barred. (Remainder Of Count 1).......
III.
The Claims Regarding Binance.com Transactions (Including BNB Vault
And Simple Earn) And The BNB Offering Are Impermissibly
Extraterritorial. (Foreign Components Of Counts 1–2 & All Of Counts 3,
5–7, & 11) ............................................................................................................. A.
The SEC’s Arguments Impermissibly Extend The Securities Laws
Overseas. ...................................................................................................
B.
The SEC’s Preferred Test Was Rejected In Morrison. .............................
C.
The SEC Has Not Plausibly Alleged Domestic Violations. .....................
IV.
The SEC’s Failure To Provide Fair Notice Compels Dismissal. (All
Counts) ..................................................................................................................
V.
The Complaint Fails To Adequately Allege Personal Jurisdiction As To Mr.
Zhao. (Counts 11 and 12).....................................................................................
i
Page 3 TABLE OF CONTENTS
(continued)
Page
CONCLUSION ........................................................................................................................

ii
Page 4 TABLE OF AUTHORITIES
Page(s)
Cases
*Abitron Austria GmbH v. Hetronic Int’l, Inc.,
600 U.S. 412 (2023) .....................................................................................................19, 20, *Absolute Activist Value Master Fund Ltd. v. Ficeto,
677 F.3d 60 (2d Cir. 2012)...........................................................................................19, 20, Audet v. Fraser,
605 F. Supp. 3d 372 (D. Conn. 2022) ......................................................................................Balestra v. ATBCOIN LLC,
380 F. Supp. 3d 340 (S.D.N.Y. 2019)........................................................................................Barron v. Helbiz, Inc.,
2021 WL 4519887 (2d Cir. Oct. 4, 2021) ................................................................................*Biden v. Nebraska,
143 S. Ct. 2355 (2023) .............................................................................................................In re BitConnect Sec. Litig.,
2019 WL 9104318 (S.D. Fla. Aug. 23, 2019)............................................................................Bloomgarden v. Coyer,
479 F.2d 201 (D.C. Cir. 1973) ...................................................................................................Brooks v. Weinberger,
637 F. Supp. 22 (D.D.C. 1986) ................................................................................................Christopher v. SmithKline Beecham Corp.,
567 U.S. 142 (2012) .................................................................................................................City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG,
752 F.3d 173 (2d Cir. 2014).....................................................................................................Continental Mktg. Corp. v. SEC,
387 F.2d 466 (10th Cir. 1967) ...................................................................................................De Luz Ranchos Inv., Ltd. v. Coldwell Banker & Co.,
608 F.2d 1297 (9th Cir. 1979) ...................................................................................................EMI Christian Music Grp., Inc. v. MP3tunes, LLC,
844 F.3d 79 (2d Cir. 2016).......................................................................................................Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London,
147 F.3d 118 (2d Cir. 1998)...............................................................................................20, *FEC v. Cruz,
596 U.S. 289 (2022) .................................................................................................................
iii
Page 5 Food Mktg. Inst. v. Argus Leader Media,
139 S. Ct. 2356 (2019) ...............................................................................................................Garvey v. ARB,
56 F.4th 110 (D.C. Cir. 2022) ..................................................................................................Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
756 F.2d 230 (2d Cir. 1985).............................................................................................4, 6, Giunta v. Dingman,
893 F.3d 73 (2d Cir. 2018).......................................................................................................Glen-Arden Commodities, Inc. v. Costantino,
493 F.2d 1027 (2d Cir. 1974).....................................................................................................Lay v. United States,
623 F. App’x 790 (6th Cir. 2015) ............................................................................................*Marine Bank v. Weaver,
455 U.S. 551 (1982) .........................................................................................................7, 8, Mazza v. Verizon Washington DC, Inc.,
852 F. Supp. 2d 28 (D.D.C. 2012) ...........................................................................................McCown v. Heidler,
527 F.2d 204 (10th Cir. 1975) ...................................................................................................Merck & Co. v. HHS,
962 F.3d 531 (D.C. Cir. 2020) .................................................................................................Michel v. Anderson,
14 F.3d 623 (D.C. Cir. 1994) ...................................................................................................*Morrison v. Nat’l Australia Bank Ltd.,
561 U.S. 247 (2010) .....................................................................................................20, 21, Myun-Uk Choi v. Tower Rsch. Cap. LLC,
890 F.3d 60 (2d Cir. 2018).......................................................................................................*N.C. Coastal Fisheries Reform Grp. v. Captain Gaston LLC,
76 F.4th 291 (4th Cir. 2023) ....................................................................................................*NFIB v. OSHA,
595 U.S. 109 (2022) .................................................................................................................*Noa v. Key Futures, Inc.,
638 F.2d 77 (9th Cir. 1980) ...............................................................................................11, PHH Corp. v. CFPB,
839 F.3d 1 (D.C. Cir. 2016) .....................................................................................................Revak v. SEC Realty Corp.,
18 F.3d 81 (2d Cir. 1994)...........................................................................................................
iv
Page 6 RJR Nabisco, Inc. v. European Cmty.,
579 U.S. 325 (2016) .................................................................................................................*Rodrig
v. Banco Cent. Corp.,
990 F.2d 7 (1st Cir. 1993) ..........................................................................................3, 5, 10, Schentag v. Nebgen,
2018 WL 3104092 (S.D.N.Y. June 21, 2018) ...................................................................20, SEC v. Banner Fund Int’l,
211 F.3d 602 (D.C. Cir. 2000) ...................................................................................................SEC v. Benger,
934 F. Supp. 2d 1008 (N.D. Ill. 2013) .....................................................................................SEC v. BitConnect,
No. 21-cv-07349 (S.D.N.Y. Sept. 1, 2021)................................................................................*SEC v. C.M. Joiner Leasing Corp.,
320 U.S. 344 (1943) .........................................................................................................3, 4, SEC v. Chenery Corp.,
332 U.S. 194 (1947) .................................................................................................................SEC v. Coinbase, Inc.,
No. 1:23-cv-04738 (S.D.N.Y. Aug. 2023) ...............................................................................SEC v. Edwards,
540 U.S. 389 (2004) ...................................................................................................................SEC v. Eurobond Exch., Ltd.,
13 F.3d 1334 (9th Cir. 1994) ...................................................................................................SEC v. Glob. Inv. Strategy UK Ltd.,
2021 WL 4896127 (S.D.N.Y. Oct. 19, 2021) ..........................................................................SEC v. Globus Grp., Inc.,
117 F. Supp. 2d 1345 (S.D. Fla. 2000) ....................................................................................SEC v. Goldman Sachs & Co.,
790 F. Supp. 2d 147 (S.D.N.Y. 2011)......................................................................................SEC v. Gruss,
859 F. Supp. 2d 653 (S.D.N.Y. 2012)......................................................................................SEC v. Kik Interactive Inc.,
492 F. Supp. 3d 169 (S.D.N.Y. 2020)....................................................................................8, *SEC v. Life Partners, Inc.,
87 F.3d 536 (D.C. Cir. 1996) .......................................................................2, 3, 6, 9, 12, 13, SEC v. Ripple Labs, Inc.,
2022 WL 762966 (S.D.N.Y. Mar. 11, 2022) ...........................................................................
v
Page 7 SEC v. Ripple Labs, Inc.,
2023 WL 4507900 (S.D.N.Y. July 13, 2023) ..........................................................................SEC v. Scoville,
913 F.3d 1204 (10th Cir. 2019) .................................................................................................SEC v. SG Ltd.,
265 F.3d 42 (1st Cir. 2001) ......................................................................................................SEC v. Terraform Labs Pte Ltd.,
2022 WL 2066414 (2d Cir. June 8, 2022) ...............................................................................SEC v. Terraform Labs Pte. Ltd.,
2023 WL 4858299 (S.D.N.Y. July 31, 2023) ........................................................................8, *SEC v. W.J. Howey Co.,
328 U.S. 293 (1946) .........................................................................................................2, 5, Spanski Enterprises, Inc. v. Telewizja Polska, S.A.,
883 F.3d 904 (D.C. Cir. 2018) .................................................................................................Texas v. NRC,
78 F.4th 827 (5th Cir. 2023) ....................................................................................................UBS Asset Mgmt. (N.Y.) Inc. v. Wood Gundy Corp.,
914 F. Supp. 66 (S.D.N.Y. 1996) ............................................................................................United States v. Kumbhani,
No. 22-cr-395 (S.D. Cal. Feb. 25, 2022)....................................................................................United States v. Santos,
553 U.S. 507 (2008) .................................................................................................................United States v. Vilar,
729 F.3d 62 (2d Cir. 2013).......................................................................................................Uselton v. Com. Lovelace Motor Freight, Inc.,
940 F.2d 564 (10th Cir. 1991) .................................................................................................Walden v. Fiore,
571 U.S. 277 (2014) .................................................................................................................*West Virginia v. EPA,
142 S. Ct. 2587 (2022) .......................................................................................................17, Wilson v. Garcia,
471 U.S. 261 (1985)
Freedom Found. v. United States,
72 F.4th 1286 (D.C. Cir. 2023) ................................................................................................*Woodward v. Terracor,
574 F.2d 1023 (10th Cir. 1978) .................................................................................................
vi
Page 8 Woytowicz v. George Washington Univ.,
327 F. Supp. 3d 105 (D.D.C. 2018) .........................................................................................Statutes
7 U.S.C. § 2(a)(1)(H) .....................................................................................................................15 U.S.C. § 77b(a)(1) .....................................................................................................................15 U.S.C. § 77d(a)(6) .....................................................................................................................15 U.S.C. § 78c(a)(10) ...................................................................................................................15 U.S.C. § 78o ........................................................................................................................
U.S.C. § 78u(d)(1) ....................................................................................................................Dodd
Act, Pub. L. No. 111-203, § 753, 124 Stat. 1376 (2010) ..........................................Rules
Fed. R. Civ. P. 12(b)(6)................................................................................................................

17 C.F.R. § 230.901 .......................................................................................................................O
Authorities
54 Fed. Reg. 30,013 (July 18, 1989) ..............................................................................................63 Fed. Reg. 14,806 (Mar. 27, 1998) .............................................................................................Hearing on Oversight of the SEC, 117th Cong. (2023) ...................................................................Statement of CFTC Commissioner Pham (July 21, 2022) ............................................................
vii
Page 9 Introduction
For more than a decade after Bitcoin launched in 2009, the SEC stood idle as Binance.com
and several other crypto platforms grew in plain sight, allowing users to buy and sell crypto tokens
without any indication that the SEC would later argue the entire industry was violating the
securities laws. The SEC was on the sidelines for good reason—unlike the CFTC, the SEC lacks
statutory authority over exchange sales of crypto assets. Yet the SEC now asks this Court to accept
a novel, contorted interpretation of the securities laws, hinging virtually its entire case on the
argument that an “investment contract” need not include either an investment or a contract. That
interpretation is untenable under the plain text of the securities laws, binding precedent, and
common sense.
The SEC’s Complaint focuses on transactions by customers who clicked on a website,
bought tokens from other anonymous token owners, and then logged off.
In none of the
transactions at issue did a contract exist with a promoter to invest money into a common business
enterprise. As a result, the SEC asks this Court to disregard text and precedent requiring
contractual commitments and to overlook the requirement of an investment into a “common
enterprise” between a promoter and purchaser. The SEC also ignores the requirement that the
existence of an “investment contract” must be determined on a transaction-by-transaction basis.
The SEC unsurprisingly cannot identify any coherent limiting principle for its novel theory,
instead simply blustering that Defendants’ arguments concerning citrus groves and baseball cards
are “absurd” because they take the SEC’s theory to its logical (and absurd) conclusion. Opp. 3.
The SEC fails to explain why its theory does not convert sales of assets such as real estate, gold,
or oil into securities transactions. At a recent congressional hearing, Chair Gensler could not even
say whether the agency’s new theory would turn electronic Pokémon cards into securities.
1
Page 10 Hearing on Oversight of the SEC, 117th Cong. (2023), https://tinyurl.com/d74us89n (2:50:00–
2:52:37) (questioning from Rep. Torres).
To be sure, the “investment contract” test is “capable of adaptation to meet the countless
and variable schemes devised by those who seek the use of the money of others on the promise of
profits.” SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946). But the test is not an inkblot that
means whatever the SEC wants. There are real limits even for assets that might, in colloquial
terms, be thought of as “investments.” See, e.g., SEC v. Life Partners, Inc., 87 F.3d 536, 538 (D.C.
Cir. 1996) (rejecting theory that instruments purchased for investment purposes were “investment
contracts”). The SEC’s repeated appeals for a “flexible” approach that eschews the text and
precedent betray the lack of legal support for its position. Tellingly, the SEC’s own amicus argues
expressly what the SEC leaves implicit: that its approach would require abandoning precedent and
overhauling Howey. NFI Br. 1–4.Argument
I.
The SEC Fails To Plausibly Allege That Any Token, BNB Vault, Or Simple Earn Is
A “Security.” (Most Of Count 1 And All Of Counts 2–3, 5–12)
A.
The SEC’s Interpretation Defies The Plain Text Of The Phrase “Investment
Contract” And The Governing Howey Test.
The securities laws define a “security” to encompass specific instruments such as
“stock[s],” “bond[s],” and “investment contract[s].” Mot. 14. Statutory interpretation starts with
the text and, when the text is clear, ends there too. See, e.g., Food Mktg. Inst. v. Argus Leader
Media, 139 S. Ct. 2356, 2364 (2019). Yet the SEC never tries to reconcile its arguments with the

For a table summarizing the grounds on which each count of the Complaint against Defendants
should be dismissed, see Exhibit A to this brief.
2
Page 11 text of these laws—the SEC even ridicules the idea that “the words” matter. Opp. 26. The reason
is clear: any interpretation of “investment contract” requires a contract and an investment.
1.
An Investment Contract Requires A Contract.
The SEC’s cases confirm that “the words” mean what they say—i.e., an investment
contract requires a contract. See, e.g., SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, (1943) (investment contract existed because “the acceptance of the offer quoted made a contract”)
(emphasis added); SEC v. Edwards, 540 U.S. 389, 397 (2004) (“We are considering investment
contracts.”). The D.C. Circuit has likewise confirmed that an investment contract by definition
requires “post-purchase commitments.” Life Partners, 87 F.3d at 545.
Case law also makes clear that assets standing alone without contractual post-sale
obligations are not investment contracts. See, e.g., Rodriguez v. Banco Cent. Corp., 990 F.2d 7,
10 (1st Cir. 1993) (“Even if bought for investment, the land itself does not constitute a business
enterprise[.]”); De Luz Ranchos Inv., Ltd. v. Coldwell Banker & Co., 608 F.2d 1297, 1301 (9th
Cir. 1979) (similar); Woodward v. Terracor, 574 F.2d 1023, 1025 (10th Cir. 1978) (similar where
defendant “was under no contractual obligation to the plaintiffs other than to deliver title”).The SEC’s quest to paint Defendants as advocating for a wooden, “formal” contract
requirement falls flat. Opp. 9, 24. Nothing about the existence of a contract requires a “formal”
instrument. See, e.g., Bloomgarden v. Coyer, 479 F.2d 201, 208 (D.C. Cir. 1973) (“An impliedin-fact contract is a true contract[.]”). Nor does the question require diving into state law, as the
SEC suggests. Opp. 25. Federal law controls the question whether there is an investment contract,

The SEC contends that Woodward does not support the contract requirement because it found
that defendants did not “promise to run the development” and distribute profits. Opp. 23. But the
lack of a “promise”—i.e., there was “no management contract between plaintiff and defendants,
nor were defendants obligated by [the land-sale contract] to perform any such services”—was why
the court found a lack of an “investment contract.” Woodward, 574 F.2d at 1026 (emphasis added).
3
Page 12 as Joiner made clear when deeming it “unnecessary” to determine whether a purchaser enjoyed a
specific state-law remedy. 320 U.S. at 348–49. Federal law also incorporates contract-law
principles like “offer” and “acceptance” as required elements of an “investment contract.” Id.
Tellingly, the SEC fails to identify a single appellate decision holding that an investment
contract need not include post-sale contractual obligations, an inherent attribute of any contract.
Banner Fund involved the promoter’s (fraudulent) promise to take individuals’ money, invest it in
various opportunities, and periodically deliver returns. 211 F.3d 602, 606 (D.C. Cir. 2000). The
Glen-Arden promoter nominally sold casks of whiskey, but coupled the sales with promises to
store the whiskey, procure insurance, assist with resale, and “handle all administrative details”—
all “commitments” that were “absolutely necessary to the turning of the promised profit.” F.2d 1027, 1032, 1034–35 (2d Cir. 1974). The Scoville defendant sold a service that entitled
websites to “the opportunity to share in [the defendant’s] revenue,” thus promising periodic profit
distributions in exchange for the purchasers’ capital. 913 F.3d 1204, 1210 (10th Cir. 2019). SG
involved a scheme where purchasers bought “virtual companies” and were guaranteed to receive
later profit distributions from the defendant. 265 F.3d 42, 45, 52 (1st Cir. 2001). In Gary Plastic,
the defendant worked with multiple banks to “specially create[]” certificates of deposit to be sold
in the defendant’s “CD Program,” and then promised to “maintain a secondary market” for the
“CD Program” and “monitor the creditworthiness of issuing banks on a regular basis.” 756 F.2d
230, 232, 240 (2d Cir. 1985). The common thread is that if the promoters had failed to execute
post-sale, profit-generating activities, they would have breached a formal or implied contract. In
none of the cases did courts find bare assets to be “investment contracts.” This dooms most of the
SEC’s case, because the agency does not allege post-sale contractual obligations for secondarymarket sales of crypto tokens. Mot. 21, 26–27.
4
Page 13 Continental illustrates the point nicely. There, promoters selling investments in beavers—
i.e., semi-aquatic mammals, not investment contracts—split the transaction “into separate
contracts for purchasing and ranching,” one of which ran to the beaver seller and the other to the
beaver rancher, who both “act[ed] in concert in the promotion” of the scheme. 387 F.2d 466, (10th Cir. 1967). Continental thus reinforces the need for contractual, post-sale obligations.
2.
An Investment Contract Requires An Investment Of Money Into A
Common Enterprise.
The text of the securities laws and Howey likewise require the “investment of money in a
common enterprise” with the promoter—yet another longstanding requirement the SEC asks the
Court to ignore. Howey, 328 U.S. at 301 (emphasis added). The SEC disavows any requirement
that purchasers’ money go to a common enterprise, Opp. 31–32, yet the SEC never articulates how
a purchaser can “invest” money in an enterprise when no money goes to the enterprise. Nor is the
SEC’s view reconcilable with basic notions of investment, in which an investor provides capital
to an enterprise in the hopes of a return from the enterprise. See, e.g., McCown v. Heidler, F.2d 204, 211 (10th Cir. 1975) (“The utilization of purchase money accumulated from lot sales to
build the promised improvements brings the scheme within the ‘common enterprise’ definition.”).
The SEC also says that “resale[s] do[] not in any way alter the economic reality” of the
transactions it alleges took place on Binance.com because resale purchasers of crypto tokens
expect to make money (and might lose money) through their secondary-market transactions.
Opp. 33–34. That argument confuses Howey’s requirement of an “expectation of profits” with the
additional and separate requirements of (1) an “investment of money” (2) “in a common
enterprise.” All three must be satisfied in order to have an “investment contract.” E.g., Rodriguez,
990 F.2d at 11 (“[E]ven if every buyer bought for investment, what was purchased in this case was
not a share of a business enterprise and so not a security.”).
5
Page 14 As with the contract requirement, the “investment of money in a common enterprise” test
is adaptable, but it cannot simply be disregarded. The SEC cites several cases for the unremarkable
proposition that the test does not turn on the nuances of accounting or “obsequious focus on how
proceeds are handled.” Opp. 32. But unlike this case, they all satisfied the basic requirement of
an “investment of money in a common enterprise.” See Life Partners, 87 F.3d at 543 (promoter
brought “together multiple investors and aggregate[d] their funds”); Gary Plastic, 756 F.2d at 241–
42 (funds went to Merrill Lynch via commissions and interest payments in connection with its
“CD Program,” which was “essentially a joint effort between the issuer of the CD, the deposit
bank, and Merrill Lynch”); In re BitConnect Sec. Litig., 2019 WL 9104318, at *1 (S.D. Fla. Aug.
23, 2019) (“Bitconnect operated a pyramid/Ponzi scheme” via two “BitConnect Investment
Programs”); id. at *7 (recognizing that Howey requires “an arrangement whereby an investor
commits assets to an enterprise or venture”) (quotation marks omitted).3.
Precedent Mandates A Transaction-By-Transaction Analysis.
The SEC also repeatedly conflates transactions during the BNB Offering and other tokens’
ICOs with secondary-market transactions. The SEC apparently believes that if some initial
offerings are investment contracts, all subsequent transactions involving these tokens are likewise
investment contracts.4 That is wrong.

Notably, in its enforcement action against BitConnect, the SEC did not allege that the
cryptocurrency token created by BitConnect (BCC) was a security, SEC v. BitConnect, No. 21-cv07349 (S.D.N.Y. Sept. 1, 2021), ECF No. 1, at 2, whereas the Department of Justice in a related
action alleged that BCC was in fact a commodity, United States v. Kumbhani, No. 22-cr-395 (S.D.
Cal. Feb. 25, 2022), ECF No. 1, ¶ 69. The SEC’s arbitrary picking and choosing of assets to
characterize as securities (or not) in 2021–2022 only underscores the lack of authority for its
sweeping position in 2023 that virtually all such assets are securities.
The SEC curiously makes much of the notion that Defendants do “not dispute” that BNB was
initially offered as an investment contract. Opp. 34, 36. That is false. Given the Rule 12 standard,
6
Page 15 The analysis must be conducted transaction-by-transaction; accordingly, a transaction
involving an exchange of an asset (as distinguished from the asset itself) might constitute an
investment contract in some circumstances, but not others. Marine Bank v. Weaver, 455 U.S. 551,
560 n.11 (1982); Mot. 15. Even the SEC admits that under Howey, “[w]here those requirements”
of an investment contract “do not exist, even with respect to the same instruments, courts find no
investment contract.” Opp. 31. This admission refutes the agency’s insistence that a blind
secondary-market transaction must be treated the same as a token sale in an ICO years earlier.
Nor does the fact that the Exchange Act sometimes applies to investment contracts mean
that it applies to sales of bare assets such as citrus groves or crypto tokens. The SEC implies that
Defendants’ interpretation is somehow in conflict with the inclusion of the phrase “investment
contract” in the Exchange Act’s definition section. Opp. 10. But the basic requirements of an
investment contract are entirely consistent with the Exchange Act. Courts have drawn a clear
distinction between the sale of investment contracts and the sale of assets that were involved in
those contracts. Revak v. SEC Realty Corp., 18 F.3d 81, 88–89 (2d Cir. 1994). When all that is
sold is an asset—stripped of the circumstances that made the original transaction an investment
contract under Howey—no “security” changes hands. Id. at 89. That the Exchange Act, among
other things, regulates secondary markets for things that are always securities (like stock) is beside
the point; here the threshold question is whether crypto tokens are securities in the first place.
Here, the SEC fails to plead how secondary-market sales of tokens involved any post-sale
contractual obligations or any investment of money into a common enterprise.
The SEC
Defendants have not moved to dismiss the SEC’s claim concerning the Offering on the ground
that those transactions did not involve any investment contract; however, Defendants dispute that
the Offering was an “investment contract” and reserve all arguments in that regard for later stages
in the case. And there are multiple alternative reasons the Court should dismiss that claim now.
7
Page 16 accordingly provides no basis to distinguish secondary-market sales from any other asset sale
where the purchaser buys an asset from a third party hoping it will appreciate in light of subsequent
advertising or other activities that increase the demand for the asset. Indeed, until very recently,
SEC officials took the same position as Defendants, correctly explaining that a “token . . . all by
itself is not a security, just as the orange groves in Howey were not.” Mot. Appx. tbl. A line 2.
The SEC’s final rejoinder is that Defendants’ understanding of the test produces absurd
results: that it would find an investment contract in one sale, yet no investment contract where the
same asset is resold by a third party. Opp. 33. That is not absurd; it reflects the transaction-bytransaction analysis mandated by Supreme Court precedent, Marine Bank, 455 U.S. at 560 n.11,
which ensures that resellers of assets like citrus groves and beavers do not become the focus of the
securities laws. It also gives effect to Congress’s decision to delegate enforcement authority over
commodities to the CFTC, while carving out a narrower subset of assets—securities—for which
the SEC is the primary federal agency.
4.
The SEC’s ICO Cases Reinforce Defendants’ Position.
The SEC invokes a handful of out-of-circuit district-court opinions concerning crypto
assets. Yet all but one involved solely ICOs, which are not at issue in this motion. In each instance,
the promoters at least arguably made offers that buyers accepted by investing money into the
enterprise. For example, in Balestra promoters sought to “raise capital” to “launch a new
blockchain.” 380 F. Supp. 3d 340, 347 (S.D.N.Y. 2019). The Audet promoters similarly raised
money to launch their program. 605 F. Supp. 3d 372, 382–84 (D. Conn. 2022). These cases are
fundamentally different from the asset sales at issue here, which are akin to the resale of land that
may have previously been the subject of an investment contract.
Only two of the cases even discuss the contract requirement. See SEC v. Terraform Labs
Pte. Ltd., 2023 WL 4858299, at *11 (S.D.N.Y. July 31, 2023); SEC v. Kik Interactive Inc., 492 F.
8
Page 17 Supp. 3d 169, 178 (S.D.N.Y. 2020). The facts of Kik easily fit into the implied-in-fact contract
framework—the promoters took investors’ money and expressly promised to use the money for
“the development of the Kin Ecosystem”; the developer could not have pocketed the money and
absconded without breaching a contract. 492 F. Supp. 3d at 174–76.5 Terraform (another out-ofcircuit case) found that issuer sales on “secondary market[s]” can constitute “investment
contracts,” 2023 WL 4858299, at *3, *15, but did not determine whether third-party resales satisfy
the “investment of money” or “common enterprise” prong. See also Mot. 18–19.
5.
The SEC’s Position Lacks Any Coherent Limiting Principle.
The SEC describes its test as follows: for crypto assets, an investment contract is anything
that gives investors “the opportunity to participate—via the potential appreciation of the value of
the crypto assets—in the promoters’ efforts to develop and grow the issuers’ blockchain-based
business.” Opp. 3. That test provides no “basis upon which to distinguish securities from nonsecurities.” Life Partners, 87 F.3d at 545. A diamond dealer that undertakes an advertising
campaign provides everyone who owns a diamond the “opportunity to participate” “via the
potential appreciation” of the value of the stones. But nobody thinks diamonds are securities.
The SEC calls that argument a “strawman,” “absurd,” and a “canard.” Opp. 3, 28. Yet the
SEC fails to explain why its theory does not lead to that absurd result. The SEC suggests its new
test applies only where an asset lacks “inherent” value, a reverse-engineered category that, under
the agency’s telling, includes only crypto tokens. Opp. 30. However, courts have long recognized
that other assets can be “worthless” without further development, but nevertheless are not
Kik also incorrectly stated that Howey does not require an “ongoing” obligation after a sale, F. Supp. 3d at 178, which cannot be squared with controlling case law in this Circuit. See Life
Partners, 87 F.3d at 545 (requiring “post-purchase commitments”).
9
Page 18 “investment contracts” without contractual obligations, an investment of money into a common
enterprise, and the other prerequisites. See Rodriguez, 990 F.2d at 8 (“worthless swamp land”).
The SEC’s approach would also extend the securities laws to Bitcoin, a conceded non-security.
Opp. 49.The SEC also has no answer for the displacement of the CFTC’s enforcement authority in
crypto spot markets that would flow from the SEC’s newfound approach. Mot. 6–7; see also, e.g.,
Dodd-Frank Act, Pub. L. No. 111-203, § 753, 124 Stat. 1376, 1750–54 (2010) (expanding CFTC’s
anti-fraud authority over commodities in interstate commerce); 7 U.S.C. § 2(a)(1)(H) (explaining
that CFTC “ha[s] no jurisdiction under” the Dodd-Frank Act “with respect to[] any security other
than a security-based swap”).7 The SEC studiously avoids discussing the harm its approach does
to the longstanding statutory framework governing financial markets.
B.
The SEC Has Not Plausibly Alleged Any Investment Contract.
Here, the SEC has failed to plausibly allege facts establishing any investment contract,
which is sufficient to dismiss almost its entire Complaint.
1.
BNB
No Contract. The SEC fails to argue that secondary-market BNB transactions created any
prospective contractual obligations on Defendants’ behalf, thereby forfeiting any such argument,
and confirming the absence of a contract.
The SEC’s need to feign ignorance of the meaning of an “asset sale,” Opp. 28, confirms it has
no answer to the problems caused by its distortion of Howey. The meaning is obvious: the sale of
something of value (be it citrus groves or crypto tokens) without post-sale obligations to develop
the asset or an investment into a common enterprise.

See also Statement of CFTC Commissioner Pham (July 21, 2022), https://tinyurl.com/2p96hsv(noting that SEC enforcement action that “allege[d] that dozens of digital assets . . . are securities”
“could have broad implications” and that these “[m]ajor questions are best addressed through a
transparent process that engages the public to develop appropriate policy with expert input”).
10
Page 19 No Investment Of Money Into A Common Enterprise. The SEC also fails to plausibly
allege how secondary-market BNB transactions involved any “common enterprise” between BHL
and purchasers. Mot. 21–24. The SEC says it alleged that BHL sold BNB directly to exchange
purchasers. Opp. 33 (citing Compl. ¶¶ 363, 388, 441). But that mischaracterizes the Complaint.
Paragraphs 388 and 441 concern third-party tokens, and have nothing to do with BHL or BNB.
Paragraph 363 makes the conclusory statement that “issuers” of crypto tokens sell them on
Binance.com, in a section about third-party tokens, not BNB. The SEC devoted an entire section
of the Complaint to BNB, yet notably did not allege that BHL sold the token on Binance.com.
Compl. ¶¶ 287–314.
The SEC “may not amend [its] complaint[] through [its] brief[] in
opposition.” Woytowicz v. George Washington Univ., 327 F. Supp. 3d 105, 119 n.4 (D.D.C. 2018).
Moreover, the SEC has not plausibly alleged a “common enterprise” under any test, even
if vertical commonality were viable (it is not). Strict vertical commonality considers whether the
investor’s and promoter’s “fortunes” were intertwined, meaning whether both the investor and the
promoter drew profits from the enterprise and shared them, and whether both likewise “shared the
risk of loss.” E.g., SEC v. Eurobond Exch., Ltd., 13 F.3d 1334, 1339–40 (9th Cir. 1994). Even
for the few courts that allow “broad” vertical commonality, to our knowledge none has found an
investment contract without investors committing money to an ongoing enterprise.
The SEC does not explain how that standard could be satisfied here, other than its attempt
to transform the common enterprise test into a “common interest” test, Opp. 16 (emphasis added),
claiming that BHL and purchasers held the same assets and hoped they would appreciate. But that
is insufficient for a “common enterprise.” Noa v. Key Futures, Inc., 638 F.2d 77, 79 (9th Cir.
1980) (per curiam). Nor was there a shared risk of loss. The value of BNB can continue to
fluctuate regardless of the financial fortunes of BHL—much like Bitcoin, which maintains value
11
Page 20 even though its creator’s identity is a mystery. As the SEC alleges, BNB was created on the
Ethereum blockchain—which neither depends on BHL nor is under its control. Compl. ¶¶ 287,
293. Indeed, the SEC admits that BNB trades on other platforms. Id. ¶ 305.
No Reasonable Expectation Of Profits From The Efforts Of Others. The SEC likewise
fails to plausibly allege that BNB holders reasonably expected profits from BHL’s alleged efforts.
The SEC must show that “profits flow predominantly from the efforts of others,” Life Partners,
87 F.3d at 548 (emphasis added), rather than market fluctuations, see Noa, 638 F.2d at 79, or
marketing puffery. See ICAN Br. 13–14. In response, the SEC again resorts to vague musings
concerning BHL’s alleged ownership of BNB, Opp. 17–18, which supposedly sent a “signa[l]”
that BHL would work to increase BNB’s value. But that could be said of any company (such as
an oil producer) that holds an asset and profits when the asset appreciates in value. Mot. 24.
As for the SEC’s alternative theory concerning BNB burns, the SEC fails to plausibly
allege sufficient post-purchase efforts. Life Partners, 87 F.3d at 548. At most, the SEC generically
pleads that BHL used “Binance’s profits with respect to the Binance.com Platform” to occasionally
execute burns. Compl. ¶ 295. The SEC’s core theory is that burns were “coded into the protocol”
when the entire supply of BNB was created, and the SEC alleges that BHL was otherwise involved
only “at times.” Opp. 15. Assuming those allegations as true, efforts coded into an asset
necessarily occur prior to secondary-market transactions, and thus do not indicate that profits flow
“predominantly” from post-sale efforts. Life Partners, 87 F.3d at 538; see ICAN Br. 7–8.
Employee Payments In BNB Do Not Constitute “Investment Contracts.” The SEC’s
allegation that BNB payments to BHL employees separately constitute “investment contracts” fails
12
Page 21 for the same reasons.8 The SEC fails to plead the existence of any contract between BHL and its
employees obligating BHL to undertake post-sale efforts on their behalf to increase BNB’s value.
And the SEC’s theory fails the “investment of money” element, too. The case the SEC cites for
the proposition that employees’ labor constitutes an “investment of money into a common
enterprise” states the opposite. Opp. 38; see Uselton v. Com. Lovelace Motor Freight, Inc., F.2d 564, 577 (10th Cir. 1991) (defendant’s argument against investment contract “ignores that
Lee Way’s union employees did more than merely contribute labor”) (emphasis added).
2.
BUSD
As for BUSD, the SEC presents no coherent argument about how a stablecoin pegged to
$1 and mechanically converted into dollars on a 1:1 basis can be an “investment contract.” The
agency contends that Defendants “offer[] no support for [their] position” that converting 1 BUSD
into $1 is “ministerial,” Opp. 40, but it is the SEC that has the burden to show (and plausibly
allege) how mechanically exchanging 1 BUSD for $1 entails “entrepreneurial” effort. See Life
Partners, 87 F.3d at 545. The SEC makes no effort to do so.
Unable to explain how a stablecoin designed not to result in profits satisfies Howey, the
SEC argues that BUSD can be “deploy[ed] . . . so as to generate profits” via other schemes, such
as the “BUSD Reward Program” or the “Binance Flexible Savings” program. Opp. 39–(emphasis added). Whether other programs combined with the sale of stablecoins constitute
“investment contracts” is not at issue here because the SEC pleaded only that BUSD itself is the
“investment contract” and has doubled down on that false premise in its brief.
The SEC says that Defendants’ “only challenge” to the Complaint’s throwaway allegations about
employee payments is the “investment of money” element, Opp. 38, ignoring that this theory also
fails “for the same reasons” as the SEC’s other theories concerning BNB, Mot. 20 n.5.
13
Page 22 The SEC itself likens BUSD to “the citrus groves in Howey.” Opp. 39. But the citrus
groves themselves were not investment contracts. Instead, the investment contracts comprised a
scheme to invest money in a common enterprise to develop the orange groves and earn profits.
328 U.S. at 299–300. Ironically, the SEC’s own allegations in Count 3 illustrate the difference
between a claim challenging an asset like a citrus grove (or crypto token) and a claim challenging
a broader scheme that allegedly packages various assets and promises into a single investment
contract. Though deficient for other reasons, Count 3 did challenge Binance.com programs on the
theory that they offer customers an opportunity to use tokens to earn money by pooling funds into
profit-making enterprises. The SEC’s failure to do that in Count 2 confirms that the agency
deliberately chose to pursue a different theory for BUSD. The SEC is stuck with that theory for
purposes of this motion to dismiss. See, e.g., Brooks v. Weinberger, 637 F. Supp. 22, 25 (D.D.C.
1986) (plaintiffs “are bound by” the complaint’s allegations). Indeed, even after an amicus
offering a competing stablecoin incorrectly argued that Count 2 challenged the Binance.com
programs (not BUSD itself), Circle Br. 3–4, the SEC did not (and could not) pursue a challenge
to the Binance.com programs themselves, whether combined with sales of BUSD or otherwise.
And the SEC’s own theory—that BUSD, the “crypto asset,” Opp. 41, is a security (as distinct from
the “profitmaking opportunities that depend upon its purchase,” id. at 40)—fails under Howey.3.
The Third-Party Tokens
The SEC’s treatment of the third-party tokens underscores just how unmoored its approach
is from text and precedent. The SEC fails to argue that any third-party token was a contract with
ongoing obligations that the promoters owed to the purchasers of the tokens. The most the SEC
Amicus’s attempt to re-plead the SEC’s Complaint, Circle Br. 3–4, is in any event not before the
court. See, e.g., Michel v. Anderson, 14 F.3d 623, 625 (D.C. Cir. 1994).
14
Page 23 alleges is that purchasers might have had the impression that third-party issuers “were financially
compelled to undertake” post-sale “efforts” because the issuers also owned the tokens and had
economic interests that were aligned with other holders. Opp. 19. Whatever that means, the
Supreme Court confirmed 80 years ago that an investment contract must entail obligations “in both
an economic and a legal sense.” Joiner, 320 U.S. at 348–49 (emphases added).
The SEC’s arguments concerning the “investment of money” into “common enterprise”
elements are similarly underdeveloped and conclusory. The agency’s only substantive argument
is that creators and purchasers held “identical tokens whose prices rise and fall together.” Opp. 18.
That cannot establish that purchasers paid for an “interest acquired . . . in an ongoing business
enterprise.” Rodriguez, 990 F.2d at 11; supra at 11 (discussing why this theory fails as to BNB).4.
BNB Vault And Simple Earn
The SEC contends that BNB Vault and Simple Earn constitute “investment contracts”
because they involve an “investment of money” and a risk of loss of that money. The Court need
not reach these arguments because the SEC’s claims concerning Vault and Earn are impermissibly
extraterritorial. Mot. 39–41; infra at 19–23. In any event, the SEC’s arguments fail.
Although the SEC now asserts that investors could incur losses from so-called “slashing
penalties,” Opp. 43, the Complaint lacks any corresponding allegation. The Complaint’s slashing
allegations all concern BAM’s staking program. Compl. ¶¶ 341, 343, 349. Moreover, the risk of
loss must be realistic rather than merely theoretical. See Marine Bank, 455 U.S. at 558–59; Gary
Plastic, 756 F.2d at 239. The SEC never alleges that any slashing event has occurred with respect

The SEC also does not rebut the argument that purchasers in blind transactions lack any
reasonable expectation that someone will use their money to earn them profits. See Mot. 27–28.
15
Page 24 to Vault or Earn, nor facts suggesting that one is realistic.11 The SEC’s contention that staking is
“a complex, resource-intensive endeavor” relies on a link to Ethereum.org, which is not in the
Complaint or incorporated by reference. Opp. 41 n.2. The SEC fails to explain how the conclusory
facts actually alleged in the Complaint plausibly show that staking is more than the mechanical
validation of on-chain transactions. Cf. Life Partners, 87 F.3d at 546. For Simple Earn, the SEC’s
even more conclusory allegations concerning unspecified efforts other than staking, Compl. ¶ 329,
similarly lack any specific facts to support the SEC’s claim.
C.
The Major-Questions Doctrine Forecloses The SEC’s Claims.
The SEC contends that the major-questions doctrine governs only cases involving an
agency’s rulemaking authority. Opp. 45–46. That argument fails for several reasons. For starters,
an agency “literally has no power to act . . . unless and until Congress authorizes it to do so by
statute.” FEC v. Cruz, 596 U.S. 289, 301 (2022). Thus, the SEC cannot pursue rulemaking or
enforcement without statutory authority. And nothing about the securities laws provides that the
definition of “security” somehow changes based on how the agency administers them. 15 U.S.C.
§§ 77b(a)(1), 78c(a)(10). The Supreme Court has “forcefully rejected” the notion that “the same
word, in the same statutory provision,” can have “different meanings in different factual contexts.”
United States v. Santos, 553 U.S. 507, 522 (2008). That is why courts have applied the majorquestions doctrine in individualized adjudications having nothing to do with rulemaking, and even
in suits between private parties. See, e.g., Texas v. NRC, 78 F.4th 827, 844 (5th Cir. 2023); N.C.
Coastal Fisheries Reform Grp. v. Captain Gaston LLC, 76 F.4th 291, 299 (4th Cir. 2023).

As for an investment of money, the cases the SEC cites to demonstrate the commitment of capital
to an enterprise are inapposite. See Opp. 42–43. In those cases, investors relinquished money to
a common investment pool but were granted a right to force the company to buy back their
investment; in none did investors, as here, get back the same asset they had loaned.
16
Page 25 Moreover, the major-questions doctrine is not just a restriction on rulemaking authority or
Congress’s attempts to punt quintessentially legislative decisions to the Executive Branch. First
and foremost, it is a canon of statutory interpretation—a clear-statement rule, cautioning courts
against allowing dramatic expansions of agency power without express permission from Congress.
E.g., West Virginia v. EPA, 142 S. Ct. 2587, 2609 (2022). Yet here the SEC seeks to wrest “a
matter of ‘earnest and profound debate’” from Congress’s hands. Biden v. Nebraska, 143 S. Ct.
2355, 2374 (2023).The SEC next argues that Congress “could reasonably be seen to have granted to the SEC”
the claimed authority, since the SEC invokes its flagship statute, rather than an “ancillary” or littleused provision. Opp. 48. But the doctrine applies equally where, as here, an agency applies a
flagship statute in a new way. NFIB, 595 U.S. at 117–18. Indeed, the “lack of historical precedent”
for the SEC’s current approach “is a ‘telling indication’” that the agency is beyond the envelope
of its statutory authority. Id. at 119.
The SEC’s portrayal of the stakes here as a single “civil enforcement action” similarly fails.
Opp. 47. Agencies can make policy either through rulemaking or enforcement. SEC v. Chenery
Corp., 332 U.S. 194, 202 (1947). Accordingly, the relevant question here is not just the economic
ramifications of this action (though they are very large), but also the knock-on effects of the SEC’s
novel position. Merck & Co. v. HHS, 962 F.3d 531, 541 (D.C. Cir. 2020). The SEC’s plain goal
is to secure a decision that crypto tokens—with the possible and unexplained exception of
Bitcoin—are “investment contracts,” a result with massive implications, which increase
exponentially due to the SEC’s inability to distinguish real estate or commodities. The potential

The SEC asserts that pending legislative proposals have no relevance, Opp. 46, a position that
defies Supreme Court precedent. See, e.g., Nebraska, 143 S. Ct. at 2373 & n.8 (noting “discussion”
in “the halls of Congress”); NFIB v. OSHA, 595 U.S. 109, 119 (2022) (per curiam) (similar).
17
Page 26 fallout is why multiple amici have appeared here and in similar litigation on both sides of the issue.
See Dkts. 50, 53, 55, 60, 62, SEC v. Coinbase, Inc., No. 1:23-cv-04738 (S.D.N.Y. Aug. 2023).
Thus, the major-questions doctrine applies here and requires clear authorization in the
statutory text. The SEC’s only response is that its new policy is “embodied in the securities laws.”
Opp. 45. That is obviously circular—an agency cannot avoid a major-questions problem simply
by positing that the statute already says what the agency wishes it to say. And the SEC fails even
to attempt a textual argument. Instead, the agency decries the very idea that it might need textual
authorization. Opp. 26–27 (mocking “the words”). The SEC’s argument that the statutes implicitly
contain express authorization makes no sense either. The whole point of the major-questions
doctrine is to require agencies to show that Congress enacted clear statutory authorization in the
text itself. West Virginia, 142 S. Ct. at 2609. Nor does the SEC dispute that, without its novel
theory of what constitutes an “investment contract,” the vast majority of its claims fail.
II.
The SEC’s BNB Offering Claim Is Time-Barred. (Remainder Of Count 1)
As for the claim regarding the BNB Offering, the SEC argues that the limitations periods
still have not started because BHL “is located outside of the United States.” Opp. 37. But the SEC
itself says that BHL has engaged in sufficient activities “within the United States” to be sued here
and for U.S. securities laws to apply. Compl. ¶ 24; Opp. 61. Coupled with its overbroad definition
of “domestic conduct,” infra at 23, the SEC’s interpretation of the limitations periods would allow
it to pursue penalties against foreign companies engaged in foreign transactions without any
temporal limitation. Such infinite liability has long been disfavored. Wilson v. Garcia, 471 U.S.
261, 271 (1985). The SEC cannot have it both ways. Either the Offering occurred outside the
United States, such that the SEC’s claim is extraterritorial, or it is untimely.
Nor does the SEC’s request for injunctive relief save its claims. Opp. 37. The SEC lacks
authority to seek an injunction unless it alleges that a defendant “is engaged or is about to engage
18
Page 27 in acts or practices constituting a violation” of the securities laws. 15 U.S.C. § 78u(d)(1). There
is no allegation that the Offering is ongoing or will imminently recur. See SEC v. Globus Grp.,
Inc., 117 F. Supp. 2d 1345, 1347 (S.D. Fla. 2000) (denying injunction absent evidence indicating
likelihood of future violations).
III.
The Claims Regarding Binance.com Transactions (Including BNB Vault And Simple
Earn) And The BNB Offering Are Impermissibly Extraterritorial. (Foreign
Components Of Counts 1–2 & All Of Counts 3, 5–7, & 11)
A.
The SEC’s Arguments Impermissibly Extend The Securities Laws Overseas.
The SEC makes no attempt to argue that the securities laws apply beyond U.S. borders,
instead arguing that the Complaint alleges “domestic violations” of those statutes. Opp. 61. As
the SEC sees it, if U.S. investors knowingly engage in online transactions with a global website,
that is a “domestic” violation of the securities laws “regardless of where . . . a ‘transaction’
ultimately occurs.” Id. But the Supreme Court has repeatedly rejected such expansive conceptions
of “domestic” conduct because they would render the presumption against extraterritoriality a
“muzzled Chihuahua.” Abitron Austria GmbH v. Hetronic Int’l, Inc., 600 U.S. 412, 426 (2023).
The presumption does not retreat simply because “particular ‘effects are likely to occur in the
United States.’” Id. The SEC’s theory has been consistently rejected by courts and would
impermissibly extend U.S. law wherever U.S. consumers go (on the internet or otherwise). See,
e.g., Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 69 (2d Cir. 2012); ICAN
Br. 3–4. Consider the SEC’s theory as applied to the London Stock Exchange. Americans might
direct their brokers or investment advisers to transact on the London Stock Exchange, whose
website is freely accessible to U.S. persons, but that does not make the exchange subject to the
U.S. securities laws.
In response, the SEC attacks a strawman. Defendants have not argued that the SEC can
regulate only companies that are incorporated or have their principal place of business in the
19
Page 28 United States. Opp. 69. The point is that the SEC “must establish that the conduct relevant to the
statute’s focus occurred in the United States.” Abitron, 600 U.S. at 418 (emphasis, quotation
marks, and citation omitted). And “the focus” of the securities laws is “purchases and sales of
securities in the United States,” i.e., “domestic transactions.” Morrison v. Nat’l Australia Bank
Ltd., 561 U.S. 247, 266–68 (2010) (emphasis added). The test for whether a transaction is domestic
turns on the location where “irrevocable liability was incurred” or “title was transferred.” Absolute
Activist, 677 F.3d at 67–68. The SEC has not met this test. See Mot. 39–41.
B.
The SEC’s Preferred Test Was Rejected In Morrison.
The SEC’s proposed test, by contrast, ignores Morrison and Abitron and instead asks
vaguely whether defendants engage in “pervasive U.S.-focused conduct,” Opp. 60, activity
“directed to the United States,” id. at 62, activity that “create[s] or facilitate[s] a market for
securities in the United States,” id. at 61, or securities-related functions “with U.S. investors,” id.
at 63 (emphasis omitted). In other words, the SEC asks the Court to apply something like the
“‘conduct’ and ‘effects’ tes[t]” that was specifically rejected in Morrison. 561 U.S. at 257–59.
Indeed, the SEC relies heavily on a case that Morrison abrogated. Opp. 61–62; Europe & Overseas
Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 125 (2d Cir. 1998), abrogated
by Morrison, 561 U.S. at 258.
The SEC also is wrong to claim that “the registration provisions” at issue here are not
transaction-focused. Opp. 61. Morrison held that “the focus” of both Acts as a whole is on
“domestic transactions.” 561 U.S. at 266–68. The Court cited (among other provisions) the
Exchange Act’s “registration requirements” and Section 5 of the Securities Act, and observed that
the Acts form a “comprehensive regulation of securities trading.” Id. at 266–69 (emphasis added).
Accordingly, courts have correctly applied Morrison’s “transactional test,” id. at 269–70, to
provisions in the securities laws other than Section 10(b) of the Exchange Act. See Schentag v.
20
Page 29 Nebgen, 2018 WL 3104092, at *5, *10–13 (S.D.N.Y. June 21, 2018) (Section 5 of the Securities
Act); SEC v. Benger, 934 F. Supp. 2d 1008, 1013 (N.D. Ill. 2013) (15 U.S.C. § 78o).The SEC mainly relies on its own statements. Opp. 60–64. But agency pronouncements
are irrelevant in this context because courts do not defer to agency positions that would give a
statute extraterritorial reach unless Congress gave an “affirmative indication that the statute applies
extraterritorially.” Garvey v. ARB, 56 F.4th 110, 121–23 (D.C. Cir. 2022). Nor do they help the
SEC on their own terms. The SEC relies on Regulation S to argue that Section 5 applies to any
offers and sales “directed to the United States—i.e., to U.S. investors.” Opp. 62. But Morrison
itself cited Regulation S in concluding that the “focus on domestic transactions is evident in the
Securities Act.” 561 U.S. at 268–69 (citing 17 C.F.R. § 230.901). Moreover, Regulation S merely
establishes “safe harbors.” Commodity Traders, 147 F.3d at 124. It does not purport to delineate
the exclusive conditions under which an offer or sale is foreign. See id. at 125.The SEC also relies on Spanski Enterprises, Inc. v. Telewizja Polska, S.A., 883 F.3d (D.C. Cir. 2018), but that copyright case is not probative of the focus or scope of securities laws
under Morrison. Many of the SEC’s other cases are likewise not about the laws at issue here. See
The SEC states that an “offer of securities . . . does not require a completed transaction,” Opp. (emphasis altered), but the securities laws confirm that an offer is a type of transaction, see, e.g.,
15 U.S.C. § 77d(a)(6) (referring to “transactions involving the offer or sale of securities by an
issuer”). For these transactions, the relevant question is whether the offer was made “in” or “from”
the United States. SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147, 165 (S.D.N.Y. 2011) (offer
was domestic because it was allegedly made “in and from New York City”) (citing Morrison, U.S. at 269–70). The SEC does not plausibly allege that any offers at issue here—including the
BNB Offering—were made in or from the United States. Mot. 39–41; infra at 22.

The SEC also cites a pair of agency statements in arguing that foreign broker-dealers that have
“contacts” with “‘the U.S. securities markets or a U.S. investor in the United States’” must register
under the Exchange Act. Opp. 63. But one of these statements specifically refers to “transactionoriented contact[s],” 54 Fed. Reg. 30,013, 30,015 n.20 (July 18, 1989) (emphasis added), and the
other likewise refers to “securities transactions,” 63 Fed. Reg. 14,806, 14,812 (Mar. 27, 1998)
(emphasis added).
21
Page 30 Lay v. United States, 623 F. App’x 790, 795 (6th Cir. 2015) (Section 206 of the Investment
Advisers Act); SEC v. Gruss, 859 F. Supp. 2d 653, 661 (S.D.N.Y. 2012) (same); Barron v. Helbiz,
Inc., 2021 WL 4519887, at *3 (2d Cir. Oct. 4, 2021) (New York state-law claims). And the SEC’s
lone case that discussed a securities law (15 U.S.C. § 78o) predates Morrison, did focus on a
defendant’s “transactions,” and involved an exemption under a provision not at issue here. UBS
Asset Mgmt. (N.Y.) Inc. v. Wood Gundy Corp., 914 F. Supp. 66, 70 (S.D.N.Y. 1996).
C.
The SEC Has Not Plausibly Alleged Domestic Violations.
Because Morrison’s transactional test applies to all of the statutory provisions at issue here,
the proper inquiry is whether “irrevocable liability was incurred or title was transferred within the
United States.” Absolute Activist, 677 F.3d at 68.Allegations regarding solicitation of U.S. users, the presence of U.S. bank accounts, and
instrumentalities of interstate commerce are insufficient to plead that irrevocable liability was
incurred or title was transferred in the United States. Mot. 40–41.16 As for BHL’s alleged use of
“U.S. high-volume traders to maintain liquidity on the platform,” Opp. 60, a trader’s residency
“does not affect whether the transaction was foreign or domestic,” City of Pontiac Policemen’s &
Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 181 (2d Cir. 2014), and the increased “liquidity” is
alleged only to have “encouraged other investors to trade on the platform,” Compl. ¶ 109.
Contrary to the SEC’s argument that “the motion to dismiss stage is not the place to resolve”
extraterritoriality, Opp. 66, the Supreme Court often resolves claims on extraterritoriality grounds
at this stage, see Morrison, 561 U.S. at 265; RJR Nabisco, Inc. v. European Cmty., 579 U.S. 325,
337 (2016).
Contrary to the SEC’s arguments in a “Notice of Supplemental Authority,” ECF No. 188,
Defendants’ admissions in recent plea agreements do not alter this analysis (nor the analysis of fair
notice, see infra at 23, or personal jurisdiction, see infra at 24, for the reasons set forth in
Defendants’ Response to the SEC’s Notice of Supplemental Authority, ECF No. 189.
22
Page 31 The SEC erroneously contends that the “irrevocable liability standard” is “satisfied here”
based on cases involving transactions that did occur in the United States. Opp. 66. For example,
in Giunta a buyer committed to transactions during conversations with the seller in the United
States. 893 F.3d 73, 76 (2d Cir. 2018); see also United States v. Vilar, 729 F.3d 62, 77–78 (2d
Cir. 2013) (one set of investors “committed to the investment while in Puerto Rico” and the other
investor “irrevocably committed . . . in New York”). Other cases are similarly inapposite. See
SEC v. Glob. Inv. Strategy UK Ltd., 2021 WL 4896127, at *7 (S.D.N.Y. Oct. 19, 2021) (dealing
with “U.S. purchasers acquiring U.S. securities in the United States” via U.S.-registered brokerdealers); Myun-Uk Choi v. Tower Rsch. Cap. LLC, 890 F.3d 60, 63 (2d Cir. 2018) (defendant did
not dispute that derivatives trades were matched in the United States).
More broadly, the SEC’s allegations regarding Binance.com (including BNB Vault and
Simple Earn) and the BNB Offering fail to satisfy any sensible definition of “domestic conduct.”
The SEC argues it can regulate any “crypto asset trading platform” that is made “available all over
the world via the internet.” Opp. 59–60. The Supreme Court has consistently and forcefully
rejected such conceptions of the reach of domestic law, because “‘United States law . . . does not
rule the world.’” Abitron, 600 U.S. at 428 (citation omitted).IV.
The SEC’s Failure To Provide Fair Notice Compels Dismissal. (All Counts)
The SEC argues that its failure to provide notice is irrelevant to the case, arguing that
defendants are not entitled to fair notice of an “‘agency’s interpretation of the statute.’” Opp. 51.

The SEC does not dispute its failure to allege transactions that were predominantly domestic,
which independently bars its claims. Opp. 68; Mot. 38, 41. Instead, the SEC halfheartedly
contends that the “predominantly foreign” test “has no bearing” in “an SEC enforcement action,”
without explaining why the applicability of U.S. law to a foreign defendant would turn on the name
of the plaintiff. And at least one court has applied the test in an SEC enforcement action. See SEC
v. Ripple Labs, Inc., 2022 WL 762966, at *14 (S.D.N.Y. Mar. 11, 2022).
23
Page 32 But in the D.C. Circuit, it is “Rule of Law 101” that an agency “violate[s] due process” where it
attempts to “retroactively appl[y]” its “new . . . interpretation of [a] statute” in an enforcement
proceeding. PHH Corp. v. CFPB, 839 F.3d 1, 46–48 (D.C. Cir. 2016), reinstated in relevant part,
881 F.3d 75, 83 (D.C. Cir. 2018) (en banc).
Next, the SEC contends that its inaction is irrelevant to fair notice, Opp. 51, but that
argument is similarly foreclosed. See Christopher v. SmithKline Beecham Corp., 567 U.S. 142,
157–58 (2012); Mot. 43. The SEC’s first guidance—a 2017 report—post-dated the BNB Offering,
Compl. ¶¶ 78, 81, and an SEC official declared in a 2018 speech that a “token . . . all by itself is
not a security,” Mot. Appx. tbl. A line 2, which flatly contradicts the agency’s new theory.The SEC also argues that Defendants had notice due to alleged statements by a BHL officer
and outside consultant in late 2018. Opp. 52. These allegations are irrelevant because the fairnotice inquiry is “objective.” Woodhull Freedom Found. v. United States, 72 F.4th 1286, (D.C. Cir. 2023). Moreover, they occurred well after the 2017 BNB Offering. Compl. ¶¶ 110–40.
V.
The Complaint Fails To Adequately Allege Personal Jurisdiction As To Mr. Zhao.
(Counts 11 and 12)
All claims against Mr. Zhao should also be dismissed for lack of personal jurisdiction.
First, the SEC concedes that control person status cannot alone support personal jurisdiction.
Opp. 71. Rather, citing only to EMI Christian Music Grp., Inc. v. MP3tunes, LLC, 844 F.3d 79,
98 (2d Cir. 2016), the SEC seeks to impute the contacts of Binance and BAM to Mr. Zhao. But in
this Circuit, a corporation’s contacts may not be imputed to an affiliated entity unless the parties

Nor can the SEC manufacture fair notice from one-off enforcement actions targeting different
crypto transactions. Opp. 50. These enforcement actions are themselves “inconsistent,” SEC v.
Ripple Labs, Inc., 2023 WL 4507900, at *15 n.20 (S.D.N.Y. July 13, 2023), and the SEC only
recently (and well after the BNB Offering) brought enforcement actions premised on its new view
that virtually all crypto assets are investment contracts, Mot. 9; see also id. at 34 n.12.
24
Page 33 are “alter egos,” Mazza v. Verizon Washington DC, Inc., 852 F. Supp. 2d 28, 41 (D.D.C. 2012),
which the SEC has not alleged here.
Second, the SEC points to Mr. Zhao’s purported involvement in “operating two
unregistered exchanges, broker-dealers, and clearing agencies targeting U.S. investors.” Opp. 72.
This merely repackages control person allegations that the SEC concedes are insufficient to
support specific personal jurisdiction. See Mot. 44. The SEC also offered no response on its
failure to distinguish between Mr. Zhao and Binance, when each defendant’s contacts with the
forum must be assessed individually. See id. at 43 (citing cases).
Finally, the SEC failed to allege any direct, suit-related contact between Mr. Zhao and
purported U.S. users. See Mazza, 852 F. Supp. 2d at 40 (corporate parent setting subsidiary’s
“revenue targets” and “strategies” was insufficient to support personal jurisdiction). The SEC’s
attempt to analogize to SEC v. Terraform Labs Pte Ltd., 2022 WL 2066414, at *3 (2d Cir. June 8,
2022), likewise fails. There, the court found that the defendants availed themselves of the forum
by personally taking business trips to the United States and retaining U.S.-based employees whose
sole duty was to solicit investment in the United States—none of which is alleged here. Id. And
even if the Complaint had adequately alleged “purposeful[] avail[ment]” of the United States, it
nonetheless fails to allege sufficient “suit-related” contacts of Mr. Zhao personally that created a
“substantial connection” with the forum. Walden v. Fiore, 571 U.S. 277, 283–84 & n.6 (2014).
Conclusion
The SEC’s claims against BHL and Mr. Zhao should be dismissed with prejudice.
25
Page 34 Dated: December 12,
Respectfully submitted,
/s/ Daniel W. Nelson
Daniel W. Nelson (D.C. Bar #433415)
Jason J. Mendro (D.C. Bar #482040)
Stephanie Brooker (pro hac vice)
M. Kendall Day (pro hac vice)
Richard W. Grime (pro hac vice)
Amy Feagles (pro hac vice)
Matt Gregory (D.C. Bar #1033813)
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-Tel: (202) 955-Fax: (202) 467-dnelson@gibsondunn.com
jmendro@gibsondunn.com
sbrooker@gibsondunn.com
kday@gibsondunn.com
rgrime@gibsondunn.com
afeagles@gibsondunn.com
mgregory@gibsondunn.com
Attorneys for Defendant Binance Holdings
Limited
26
Page 35 /s/ Abid R. Qureshi
Abid R. Qureshi (D.C. Bar No. 459227)
William R. Baker, III (D.C. Bar No. 383944)
Eric S. Volkman (D.C. Bar No. 490999)
Michael E. Bern (D.C. Bar No. 994791)
LATHAM & WATKINS LLP
555 Eleventh Street, NW, Suite Washington, DC Tel: (202) 637-Fax: (202) 637-abid.qureshi@lw.com
william.baker@lw.com
eric.volkman@lw.com
michael.bern@lw.com
Douglas K. Yatter (pro hac vice)
Benjamin Naftalis (pro hac vice)
LATHAM & WATKINS LLP
1271 Avenue of the Americas
New York, NY Tel: (212) 906-Fax: (212) 751-douglas.yatter@lw.com
benjamin.naftalis@lw.com
Heather A. Waller (pro hac vice)
LATHAM & WATKINS LLP
330 North Wabash Avenue, Suite Chicago, IL Tel: (312) 876-Fax: (312) 993-heather.waller@lw.com
Melanie M. Blunschi (pro hac vice)
LATHAM & WATKINS LLP
505 Montgomery Street, Suite San Francisco, CA 94111-Tel: (415) 391-Fax: (415) 395-melanie.blunschi@lw.com
Attorneys for Defendant Changpeng Zhao
27
Page 36 Exhibit A
Page 37 Grounds for Dismissal of SEC Claims Based on BHL and Mr. Zhao’s Motion to Dismiss
Claim
Count 1: Against BHL for unregistered offers and
sales of BNB (15 U.S.C. §§ 77e(a) and (c))
Failure to Plead
“Investment
Contract”

(secondary
transactions)
Count 2: Against BHL for unregistered offers and
sales of BUSD (15 U.S.C. §§ 77e(a) and (c))
Count 3: Against BHL for unregistered offers and
sales of Simple Earn and BNB Vault (U.S.C. §§ 77e(a) and (c))
Count 5: Against BHL for Binance.com not being
registered as an exchange (15 U.S.C. § 78e)
Count 6: Against BHL for Binance.com not being
registered as a broker-dealer (15 U.S.C. § 78o(a))
Count 7: Against BHL for Binance.com not being
registered as a clearing agency (15 U.S.C. § 78q1(b))
Count 8: Against BHL for Binance.US not being
registered as an exchange (15 U.S.C. § 78e)
Count 10: Against BHL for Binance.US not being
registered as a clearing agency (15 U.S.C. § 78q1(b))
Count 11: Control person liability against Mr. Zhao
for Binance.com not being registered as an
exchange, broker-dealer, and clearing agency (U.S.C. § 78t(a))
Count 12: Control person liability against Mr. Zhao
for Binance.US not being registered as an exchange,
broker, and clearing agency (15 U.S.C. § 78t(a))
Statute of
Limitations

(Initial
Offering)
Extraterritoriality

Failure to Plead
Personal Jurisdiction
as to Mr. Zhao

(Initial Offering
& secondary
transactions on
Binance.com)



Lack of Fair Notice
(transactions on
Binance.com)
(Initial Offering &
secondary
transactions)
N/A


N/A



N/A



N/A



N/A



N/A



N/A



N/A



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


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