Class Action Alleges Binance U.S. Lied to Investors About terraUSD Stability

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Binance U.S. faces a proposed class action lawsuit that alleges the cryptocurrency exchange broke the law by failing to formally register its terraUSD “stablecoin” as a security and misled investors in regard to its stability.  

The 72-page complaint’s filing comes less than a month after terraUSD collapsed and lost essentially all of its value—approximately $18 billion. Consumers who invested in terraUSD on the basis of Binance U.S.’s representations that the “algorithmic stablecoin,” created and centrally controlled by Terraform Labs, was “safe,” “stable,” and “fiat-backed” had their investments wiped out, the case says. 

“Since the collapse of [terraUSD], Binance U.S. has removed its advertisements touting [terraUSD] as ‘safe’ and ‘fiat-backed,’ effectively conceding that [the asset] was none of those things,” the suit states. 

According to the filing out of California, the value of terraUSD depends on and is derivative of the value of Luna, another crypto asset developed and centrally controlled by Terraform Labs. Per the case, the respective prices of both terraUSD and Luna hinged upon the success or failure of Terraform Labs, and Binance U.S., as an early supporter of the company, touted the terraUSD as “safe” and able to provide a high yield for investors. 

Despite enjoying “fantastic profits” from terraUSD, Binance U.S. “plainly failed to comply with federal and state securities laws,” the lawsuit alleges. Specifically, the complaint charges that Binance U.S. failed to disclose that terraUSD is, in fact, a security and that it was selling the security even though no registration statement existed for it. Further, the lawsuit says Binance U.S. itself has “refused” to register with the U.S. Securities and Exchange Commission (SEC) as either a securities exchange or broker-dealer. As a result, investors are left without access to the disclosures that generally accompany a publicly traded security, the complaint says.

Despite this, however, Binance U.S. continues to sell securities created by Terraform Labs, the case relays. To add insult to injury, the lawsuit says, Binance U.S.’s parent company on May 31, 2022 began to sell Luna 2.0, a new token that, like its predecessor, is centrally controlled by Terraform Labs. 

“In short, if Binance U.S. wants to enjoy the many benefits of operating in the U.S. market, it must comply with U.S. federal and state securities laws,” the case reads. “Yet Binance U.S. has chosen not to do so.”  

According to the lawsuit, Binance U.S.’s failure to comply with federal securities law “critically enables bad actors like TFL” to harm investors. The case alleges that Binance U.S. has a “stark incentive” to sell crypto assets regardless of their compliance with the law given they exchange profits on every trade. 

“From Binance U.S.’s perspective,” the suit says, “the less disclosure, the better, as more disclosure about the riskiness of crypto-assets will predictably lead investors to trade certain assets less and reduce transaction volume and Binance U.S.’s astonishing profits.” 

The lawsuit looks to represent all individuals or entities nationwide who transacted in terraUSD on Binance U.S. between April 13, 2022 and the present. 

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