In the rejection request submitted to the court on November 4, the SEC was criticized for not setting a standard for which crypto asset transactions will be considered investment contracts.

Lawyers for Binance and Zhao argue that the SEC has caused legal uncertainty and made arbitrary practices in the crypto market by expanding the definition of investment contract covering crypto assets.

The attorneys’ filing alleges that the SEC’s amended complaint ignores a previous court ruling stating that crypto assets are not securities in themselves.

The logical consequence of this decision is that secondary market sales of crypto assets after their initial distribution by their developers should not be considered securities transactions, according to the court filing. Despite this, the SEC continues to classify almost all transactions involving crypto assets as investment contracts.

“The SEC’s amended complaint continues to insist that even blind market sales are securities transactions because some buyers act in the hope that the assets will appreciate in value,” this perspective states.

In the application, the SEC’s failure to provide a clear regulatory framework regarding virtual assets is criticized as a serious problem for legal processes and market participants.

Lawyers state that the SEC’s failure to provide guidance on which crypto asset transactions are considered investment contracts creates uncertainty for both companies and users.

Additionally, the SEC’s decision to consider crypto asset transactions such as Ethereum as investment contracts in some cases without explanation strengthens the criticism that the institution acts arbitrarily in the crypto space.

This case comes forward as part of Binance and Zhao’s efforts to defend against the lawsuit filed by the SEC in June 2023. The SEC alleged Binance’s controls over its US operations and the claim that some of its transactions were investment contracts.

However, Binance disputes the SEC’s claims, arguing that crypto assets are not securities and secondary market transactions should not be considered securities. In addition to this legal process, the US Department of Justice also initiated criminal cases against Zhao and Binance Holdings.

In November 2023, Binance pleaded guilty to charges of money laundering, unlicensed money transfer and sanctions violations and paid a $4.3 billion fine. During the same period, CZ Zhao also completed a four-month prison sentence in the United States.

These legal processes for Zhao and Binance have a wide impact in the crypto world. These fights between Binance and Zhao against the SEC can serve as an important example for the industry on how crypto assets should be handled legally and which transactions will be considered investment contracts.

In particular, these cases may contribute to clarifying regulatory guidelines for other companies operating in the crypto market.

Recently, the SEC has increased its enforcement against crypto companies and is trying to provide regulatory clarity in the industry. These cases are a call for future regulations for crypto companies to be more transparent and specific.

On the other hand, some observers suggest that such regulatory uncertainties could negatively impact the pace of innovation and stimulate crypto markets outside the US. There is increasing expectation that the SEC will introduce clearer regulations in the crypto market and provide a more specific standard in its practices in the market.