Binance.US sued for promoting TerraUSD as “safe” and “fiat-backed”

abdelaziz Fathi

A group of investors who bought TerraUSD (USTC) and its sister cryptocurrency Terra (LUNC) through Binance.US filed a class-action lawsuit.

The plaintiffs say the American outpost of the world’s biggest crypto exchange and its CEO Brian Shroder had allegedly mislead them and failed to comply with federal and state securities laws.

The lawsuit lists the controversial algorithmic stablecoin and other tokens that it claims are securities Binance.US is selling in violation of law, and the buyers were not warned of the risks involved in their purchases.

The 72-page document, which was filed Monday in the Northern District of California, argues separately for each token in question that it qualifies as a security under the Howey test. The compliant further allege that Binance.US and its senior management deliberately marketed the troubled project because its global parent had previously invested in it.

In addition, the over 2,000 investors claim that Binance.US was the “actual seller” when an exchange takes place, crediting and debiting the parties involved in the transaction in its accounts, rather than facilitating a direct exchange between those parties.

Per the court papaers, Binance U.S. falsely advertised UST as “safe” and “fiat-backed,” as shown in the following adverts.

“Binance U.S.’s failure to comply with the securities laws, and its false advertisements of UST, have led to disastrous consequences for Binance U.S.’s customers: in May 2022, in the span of just a few days, UST lost essentially all its value—a loss of approximately $18 billion. Investors who purchased UST on Binance U.S. were wiped out, learning quickly that, contrary to Binance U.S.’s advertisements, UST was not “safe,” “stable,” or “fiat-backed,” the legal notice reads.

Similar cases arose a few years ago after the US regulators cracked down on initial coin offerings (ICOs). However, while the SEC has pursued cases against token issuers, such as its current dispute with Ripple, and market participants such as BlockFi, but the SEC has not yet taken action against platforms or exchanges listing them.

Binance currently offers crypto spot trading to both retail and institutional clients. However, it is required to comply with all federal and state laws, including ‘know your customer’, anti-money laundering and related regulations.

Money Transmitter licenses enable Binance.US to provide its services in 45 out of 50 US states as an independent offering to its customers, without relying on a third party. The exchange, which launched in 2019, is also available in eight territories and plans to expand services to all US states and territories in the future.

Earlier in April, Binance.US closed its first funding round after raising more than $200 million at a pre-money valuation of $4.5 billion. While it has seen greater trading volumes than other rivals in the US, Binance.US still trails far behind Coinbase.

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