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Binance Cofounder Yi He said the Binance Coin is not a security token after a report came out that the Securities & Exchange Commission is investigating whether the world’s largest cryptocurrency exchange broke U.S. securities rules when its token went public.
“This part I can very clearly give you an answer: BNB is not a security token,” He told Yahoo Finance in an exclusive interview without confirming the investigation.
Investigators are reportedly examining whether Binance’s 2017 initial coin offering amounted to the sale of a security that should have been registered with the agency, according to Bloomberg.
The SEC also declined to comment, noting the agency "does not comment on the existence or nonexistence of a possible investigation,” an SEC spokesman told Yahoo Finance.
Still, He made the case that Binance coin is a utility token — one that’s used to access a company’s service and not meant to be used as an investment. He said BNB is used to help the functioning of Binance’s chain.
“If you believe public chain is a kind of technology supporting the metaverse, or supporting a future web 3 program, the BNB chain is the most active public chain,” said He. “We have the most traffic on the chain and we are faster than Ether.”
Though lawyers who consult with the crypto industry say just because a company may view its token as a utility coin, that doesn’t mean it’s not being used in a way that would also make it fall under an investment contract in the eyes of the SEC. If a token falls under the Howey test — a case law test that helps determine what's a security – then the SEC can exert its authority.
Binance maintains that the industry has grown extremely fast and that the company is learning alongside regulators.
“Binance is very committed and serious about regulatory compliance and adhering to all requirements and that's exactly what we've been doing,” a company spokesperson said.
SEC Chair Gary Gensler has argued that ICOs are securities. Speaking last August, Gensler argued people buying the tokens are expecting profits.
“It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities,” said Gensler. “These products are subject to the securities laws and must work within our securities regime.”
The SEC has brought dozens of actions in this area, and Gensler and the agency have promised to bring enforcement action to any other rule violators.
One case in particular could set precedent. The SEC has charged crypto company Ripple for violating securities laws when it sold its token XRP without registering with the commission to finance its platform, thereby selling an illegal and unregistered security. Ripple has challenged the charges in an ongoing court case that will interpret whether the SECs interpretation is correct and set precedent for regulating crypto tokens.
The SEC’s reported case comes as Binance faces multiple investigations from the Justice Department, the Commodity Futures Trading Commission and the Internal Revenue Service.
Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. Follow her at @Jenniferisms.