The most recent, 13-counts enforcement case of SEC v. Binance Holdings Limited, et al. seems poised to slay the largest crypto dragon on earth, except, standing in the way, there are a few jurisdictional and technical hurdles/challenges.

First is the jurisdictional question of extraterritoriality application of US securities law, or lack thereof. Binance is an off-shore, foreign, rather than a US domestic issuer, dealer and crypto exchange. By legislative design, US securities laws cover domestic securities and exchanges.

US Supreme Court in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010) states: The Exchange Act applies to those “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.” Id. at 267. Morrison’s prohibition on extraterritoriality applies to Securities Act claims as well. “The same focus on domestic transactions is evident in the Securities Act of 1933.”) Id. at 268.

According to Morrison: An exchange is considered “domestic” if it registers as a “national securities exchange.” An exchange need only register if a “facility of [the] exchange [is] within or subject to the jurisdiction of the United States.” 15 U.S.C. §78e. 

Binance (except probably Binance.US), having gone extra miles to be jurisdiction-arbitraging and off-shore, has not registered or built its exchange and trading facility within United States.

According to 2^nd Circuit Court of Appeals’ Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012): A transaction is domestic if “irrevocable liability is incurred or title passes within the United States.” Id. at 66. The Second Circuit further states that a trade is not considered domestic on the basis that the purchaser “places a buy order in the United States for the purchase of foreign securities on a foreign exchange.” City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 187 (2d Cir. 2014).

As such, for the Binance crypto token purchase transactions to be considered domestic, the complaint needs plausible and factual pleadings that US purchasers incurred irrevocable liability in the United States or title to the crypto tokens passed within the United States. Without discovery, however, pleading in this regard can only be conclusive and dismissible.

The prohibition on the extraterritorial application of US securities law is clear and straightforward, a legislative design; a few class actions filed against Binance have been dismissed on the question of extraterritoriality, including JD Anderson v. Binance (S.D.N.Y. 20-CV-2803). Presumably, the SEC would have to pass the same jurisdictional hurdle and Rule 12(b)(6) motion to dismiss. Unless and only if the complaint survives the dismissal motion on the question of extraterritorial application, the case won’t even proceed to the substantive, hot-button issues, including the situs/location of the crypto token transactions (irreversible liability or passing of title), and if the crypto tokens issued and trading on crypto exchanges (such as Binance) qualify as securities under US Supreme Court’s Howey test, etc.