SEC Proposes to Dismiss Binance and CZ Lawsuit: Signs of a Shift in Regulatory Policy

The U.S. Securities and Exchange Commission (SEC) recently requested a federal court in Washington D.C. to dismiss a high-profile civil lawsuit against the global cryptocurrency exchange Binance and its founder, Mr. Changpeng "CZ" Zhao. This move is seen as a significant turning point in the SEC's enforcement strategy regarding cryptocurrency. Request for Dismissal With Prejudice In a joint petition submitted on May 29, the SEC, along with Binance and Mr. Zhao, proposed to dismiss the lawsuit "with prejudice" – meaning that the same case cannot be refiled with similar allegations in the future. This is a significant legal move, showing that the SEC is actively and decisively withdrawing from this case. Context of the Lawsuit The initial lawsuit was initiated by the SEC in June 2023, accusing Binance, its U.S. affiliate BAM Trading, and Mr. CZ of serious violations of securities laws. The allegations include the misuse of customer assets and providing misleading information to investors. The case was temporarily suspended in February and once again in April of this year, while the SEC – through the newly established cryptocurrency task force – conducts a reassessment of its enforcement strategy in the digital asset space. Impact from the SEC's New Task Force In the court filing, the SEC stated that developments from the cryptocurrency task force could "affect and facilitate the resolution of this lawsuit." The SEC also emphasized that the decision to withdraw the lawsuit is a "policy consideration" – indicating that this is a strategic decision, not a failure in legal arguments. This is entirely separate from the settlement in November 2023, when Binance and CZ pleaded guilty to criminal and civil charges related to violations of anti-money laundering regulations and economic sanctions, with a record fine of up to $4.3 billion. However, this settlement does not include the SEC's civil lawsuits – which have only recently been proposed for dismissal. Changes in SEC's Approach Under Trump Administration This withdrawal comes as the Trump administration, which is now back in power, is showing a trend of easing and reevaluating the strict regulatory policies that were once in place under President Biden. Under SEC Chairman Gary Gensler (được appointed by Mr. Biden), the SEC took a tough stance, conducting a series of lawsuits against major exchanges such as Binance, Coinbase, Kraken,... with allegations of providing unregistered securities in the form of digital tokens. On the contrary, the current administration has shown a greater friendliness towards the cryptocurrency industry, reflected in the public statements of President Trump supporting digital assets. As a result, the SEC seems to be recalibrating its direction, shifting to a more cautious approach in law enforcement, with a significant decrease in the number of new investigations and lawsuits. Conclusion The SEC's official proposal to dismiss the civil lawsuit against Binance and CZ can be seen as a clear signal of a shift in the regulatory stance towards the cryptocurrency industry in the U.S. Amidst a changing political landscape, the agency seems to be redefining its role – from a "strict gatekeeper" to a more flexible coordinator, aligning better with the new vision of the current administration.