Investor Choice Advocates Network (ICAN), a nonprofit public interest litigation organization, filed an amicus brief on Sept. 28 in support of Binance's motion to dismiss the lawsuit filed against it by the U.S. Securities and Exchange Commission (SEC). ICAN said it filed the brief due to concerns that the SEC's "ambiguous and expansive" application of existing securities laws could negatively impact investors and individuals wishing to participate in the digital asset industry.
In the brief, ICAN said that the SEC is potentially hindering technological progress that has enabled investors to participate in digital asset markets by attempting to extend its authority over transactions that have taken place outside of the U.S. ICAN pushed back against the SEC's assertion that although Binance.com is a foreign platform, American investors who have left the U.S. and participate in foreign markets should still be governed by U.S. federal securities laws. ICAN argued that the SEC's approach is harming investors and could shut them out of foreign markets and added that any SEC allegations concerning certain transactions need to be accompanied by evidence that those transactions took place in the U.S.
ICAN goes on to argue that because of technological advancements, including the blockchain technology underpinning digital assets, American investors are now able to participate in foreign markets and should be free to do so, subject to the laws and regulations of the markets in which they choose to participate. In the brief, ICAN argues that the SEC's position on digital assets could lead to foreign markets shutting out U.S. residents, depriving those investors of international opportunities. ICAN also said that some foreign regulators do not view digital assets as securities, so foreign platforms may exclude Americans out of a desire to avoid triggering U.S. securities laws.
According to ICAN's brief, forcing digital platforms to attempt to comply with the laws of every country from which a user might be transacting would result in "an unworkable web of compliance requirements, rather than a solution that fits with technological progress." ICAN said investors would face higher costs and fewer opportunities as a result.
ICAN dismissed the SEC's allegations that the digital assets in question in the lawsuit are securities, stating that the SEC is incorrectly applying the Howey test. According to the brief, any profit an individual might gain from digital assets would be the result of market fluctuations, not the managerial efforts of a third party.
The SEC has alleged that certain digital assets are "deflationary," meaning that the quantity of the asset will decrease over time through "burning," but ICAN responds that although the price of the asset could increase when the supply decreases, they "cannot plausibly contribute to the existence of an investment contract," according to the brief. ICAN said that an asset being "deflationary" is simply a rule that has been programmed into the code of the asset to govern its operation. "The supply rules are therefore intrinsically linked to the digital asset itself, and they operate automatically—without the efforts of any others—as a function of the blockchain’s operation," according to the brief. ICAN argued that other "deflationary" items like oil, undeveloped land, and precious metals are not considered securities, despite the fact that an individual might purchase them with the expectation that they will increase in value as their supply decreases. ICAN said that the deflationary quality of digital assets "is no different from the fact that oil is destroyed when consumed."
ICAN alleges that the SEC appears to be attempting to expand its own jurisdiction through "piecemeal litigation" rather than through comprehensive rulemaking or through authority granted by Congress, according to the brief. By litigating rather than rulemaking, ICAN said that the SEC is excluding investors from the process, despite the SEC's charge to protect investors. ICAN asked the Court to grant Binance's motion to dismiss the SEC's lawsuit.