Filing a class-action complaint about Binance.US will happen today. They are claiming that the crypto exchange is misinforming customers regarding the security of Terra’s stablecoin UST and native token LUNA.
Binance, accordingly, is also breaking federal law by offering UST and LUNA. Thus, the plaintiffs contend that these are commodities that should register first with the Securities and Exchange Commission. Furthermore, it is also functioning as an illegal securities exchange.
This morning in the U.S, the class action was filed in the District Court for the Northern District of California. This is the first significant effort to leverage the American legal system. This is to address the harm that causes the stunning crashes of UST and LUNA early last month, which wipes off $40 billion in valuation.
The claimants point to Binance’s marketing that it was secure and fiat-backed in the months leading up to its fall. These are the assertions that the plaintiffs’ attorneys believe are plainly incorrect.
UST is an algorithmic stablecoin that relies only on an analytical link with Terra’s native token, LUNA, for stability. The price of the UST deviates out of its peg to the US dollar. This is a system that they build to always allow the conversion of 1 UST for 1 LUNA. This arrangement is to encourage speculators to narrow any value difference between the UST and the dollar.
The system will function until UST’s abrupt de-pegging the previous month when it pulls LUNA back with it. Hundreds of shareholders, including the as-of-yet unfamiliar number of plaintiffs’ parties to today’s litigation, were out when the value of both coins plummets.
As per the lawsuit, Binance’s refusal to disclose UST and LUNA’s dangers to potential investors was not an oversight. Nevertheless, it is rather a deliberate and strategic decision.
The Federal Government Taking Over Responsibility
Decrypt approaches Binance US for a response, but there was no response as of this writing. The topic of which cryptocurrencies deems to be securities by the US authorities remains unclear.
A bipartisan Senate measure proposes to remove the Securities and Exchange Commission’s regulation of the top 200 coins last week. As a result, the CFTC and the federal government’s commodities watchdog take over that responsibility. The same measure would make it illegal to sell stablecoins like UST that do not have a 100% financial cushion.
According to a report this week, the SEC is examining whether Terra breaches investor protection requirements upon creating a UST and seeing its downfall. Authorities in South Korea are looking into Terra’s controversial co-founder, Do Kwon, for any possible wrongdoing in the UST and LUNA crashes. Despite being recently forced to comply with an SEC investigation, Terra and Do Kwon have yet to face major litigation in the United States.
According to a source familiar with the case, the lawyers driving today’s lawsuit were looking after Binance US first. It is because litigating the centralized exchange provides the best quick change. This is for investors who wipes out by Terra’s fall to recuperate as many funds as feasible.
Speaking to the identical source, the legal firms defending the Binance plaintiffs want to file a similar complaint against Terra. As a result, they’ll go to arbitration with Coinbase as well as other monopolistic exchanges that trade UST and LUNA.
One of the lawyers defending the plaintiffs in today’s lawsuit, Tibor Nagy. He feels that exchanges like Binance and Coinbase perform a key role in extending the impact of Terra’s death to ordinary people.
