Binance Sued by Investor in Wake of Crypto Crash

Plaintiff Jeffrey Lockhart filed a class action complaint Monday against cryptocurrency trading platform, BAM Trading Services Inc., better known as Binance U.S., and its CEO, Brian Shroder, for violating U.S. federal and state securities laws.

Binance U.S. used its website to sell Terra USD (UST) to cryptocurrency investors. UST is a specific type of cryptocurrency, an algorithmic stablecoin, created and controlled by Terraform, a crypto-asset company in Singapore. The value of UST is dependent on the value of another cryptocurrency from Terraform: LUNA.

According to the complaint, Binance U.S. falsely advertised and sold UST to investors as a “safe” and “fiat-backed” asset. The complaint alleges that Binance U.S. failed to disclose that UST is a security even though Binance U.S. has refused to register with the Securities and Exchange Commission as a securities exchange.

The complaint claims that Binance U.S.’s failure to comply with securities laws and its false advertising of UST have led to disastrous financial loss for UST investors: in May 2022, in the span of a few days, UST lost approximately $18 billion in total value. However, despite this severe loss, Binance U.S. has not stopped selling securities created by Terraform; in fact, the defendant began selling Luna 2.0 — from Terraform — on May 31, 2022.

Lastly, Binance U.S. allegedly benefits from the same lack of disclosure that harmed its investors, according to the complaint. Binance U.S. profits from every trade, and therefore has incentive to sell cryptocurrencies in regards to quantity not quality.

The plaintiff seeks the following for relief: an order certifying the action as a class action, an order declaring the defendants violated federal and state securities laws, an injunction enjoining Binance U.S. from offering UST for purchase without having registered as a national securities exchange, and awards of relief and damages.

The plaintiff is represented by Dontzin Nagy & Fleissig LLP and Roche Freedman LLP.