By Jonathan Stempel
NEW YORK (Reuters) -A federal appeals court on Friday revived a lawsuit where investors accused Binance, the world's largest cryptocurrency exchange, of violating U.S. securities laws by selling unregistered tokens that lost much of their value.
In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals in Manhattan said investors in the proposed class action plausibly alleged that domestic securities laws applied because their purchases of tokens had become irrevocable in the United States once they paid for them.
Circuit Judge Alison Nathan said Binance's use of domestic Amazon (NASDAQ:AMZN) computer servers to host its platform supported this outcome, given how Binance "notoriously denies the applicability of any other country's securities regulation regime."
The appeals court also said investors could pursue claims arising from purchases made within the year before they sued.
Friday's decision reversed a March 2022 ruling by U.S. District Judge Andrew Carter in Manhattan, and returned the case to him.
The appeal covered investors who had bought seven tokens - ELF, EOS, FUN, ICX, OMG, QSP and TRX - through Binance starting in 2017, and which soon lost much of their value.
They claimed that Binance failed to warn them about the tokens' "significant risks" and sought to recoup what they paid.
Binance argued that U.S. securities laws did not apply because its exchange was located outside the country.
It cited 2010 U.S. Supreme Court decision, Morrison v National Australia Bank (OTC:NABZY), that limited the extraterritorial reach of domestic securities laws.
Binance and its lawyers did not immediately respond to requests for comment.
Jordan Goldstein, a lawyer for the plaintiffs, said his clients were pleased that the court "unanimously acknowledged the strength of our claims."
The case is separate from Binance's recent guilty plea and more than $4.3 billion penalty for violating federal anti-money laundering and sanctions laws.
Binance founder Changpeng Zhao pleaded guilty to related money laundering violations and stepped down as chief executive. His sentencing is scheduled for April 30.
The case is Lee et al v Binance et al, 2nd U.S. Circuit Court of Appeals, No. U.S. District Court, Southern District of New York, No. 22-972.