Key Points
- The U.S. Court of Appeals for the Ninth Circuit has partially reversed the dismissal of a class-action lawsuit alleging Binance.US and CoinMarketCap manipulated the price of the HEX token.
- The appeals court ruled that the district court has personal jurisdiction over U.S.-based defendants Binance.US and CoinMarketCap, sending the case back for further proceedings.
Court Overturns Dismissal, Citing Jurisdictional Error
In a significant legal development, the United States Court of Appeals for the Ninth Circuit has breathed new life into a class-action lawsuit against Binance.US and CoinMarketCap. The suit, initially filed by Ryan Cox in 2021, alleges that these entities unlawfully manipulated the price of the cryptocurrency token HEX.
On August 12, 2024, a panel of three judges issued an opinion that partially reversed a previous district court dismissal of the case. The appeals court disagreed with the lower court’s conclusion that Cox needed to establish “sufficient minimum contacts” between Binance.US and Arizona, where the lawsuit was originally filed, to establish personal jurisdiction.
According to the court’s opinion:
“Given that each company is incorporated or has a principal place of business in the United States, each has sufficient contacts with the United States to satisfy due process.”
This ruling effectively means that the district court has personal jurisdiction over the U.S.-based defendants, Binance.US and CoinMarketCap, due to their substantial connections with the United States rather than just Arizona.
Allegations of Price Manipulation
The crux of Cox’s lawsuit revolves around the alleged manipulation of HEX’s ranking on CoinMarketCap, a popular cryptocurrency price-tracking platform owned by Binance. Cox claims that Binance Capital Management and Binance.US artificially restricted HEX’s ranking on the site, resulting in the token trading at a lower price while Binance’s cryptocurrencies were ranked higher.
The appeals court found that Cox’s suit made justifiable price manipulation claims against Binance.US. As stated in the verdict:
“Cox’s claims for price manipulation under the Commodity Exchange Act are colorable.”
This determination has led to the case being remanded for ongoing legal proceedings, giving Cox’s allegations a chance to be heard in court.
Broader Context: HEX and Regulatory Scrutiny
The revival of this lawsuit comes amid increased regulatory attention on HEX and its creator, Richard Heart. On July 31, 2023, the U.S. Securities and Exchange Commission (SEC) sued Heart for allegedly violating federal securities laws and defrauding investors of at least $12.1 million in the U.S. and overseas.
The SEC’s lawsuit claims that Heart misused investor funds for personal luxury purchases instead of developing or marketing the HEX token. This regulatory action, coupled with the revived class-action suit, places HEX at the center of legal and regulatory scrutiny in cryptocurrency.
As of the latest data, HEX is trading at $0.004, representing a stark decline of over 99% from its all-time high of $0.51, reached in September 2021.
Court’s Conclusion and Implications
The appeals court’s decision has significant implications for the case and potentially for future cryptocurrency-related lawsuits. In its conclusion, the court stated:
“We reverse the district court’s determination that it lacked personal jurisdiction over CoinMarketCap and Binance.US and remand for further proceedings consistent with this opinion. We affirm the district court’s determination that the court lacked personal jurisdiction over Binance Capital, Zhao, He, and Lin, but vacate the dismissal against them ‘with prejudice,’ and remand with instructions to dismiss the complaint against them without prejudice.”
This conclusion effectively means that while the case can proceed against the U.S.-based entities (CoinMarketCap and Binance.US), it cannot continue against Binance Capital and the individual defendants (Zhao, He, and Lin) due to lack of personal jurisdiction. However, the dismissal against these foreign defendants is now without prejudice, leaving open the possibility of future legal action if circumstances change.
The court’s decision to allow the case to proceed against CoinMarketCap and Binance.US could set a precedent for how U.S. courts handle jurisdictional issues in cases involving cryptocurrency exchanges and related entities. It underscores the importance of a company’s connections to the United States as a whole, rather than to a specific state, in determining jurisdiction in such cases.
As the case moves forward, it will be closely watched by the cryptocurrency industry and legal observers alike. The outcome could have far-reaching implications for how cryptocurrency price tracking and exchange platforms operate, and how they may be held accountable for alleged market manipulation.
