The exchange's lawyers told the Washington court that the SEC had not presented a compelling argument that Binance violated securities laws.

These arguments were previously labeled as "baseless" and "inaccurately explained" in Binance's prior filings regarding federal securities laws.

According to court documents this week, Binance's lawyers will also question Judge Amy Berman Jackson about whether litigation is an appropriate way for the SEC to oversee the cryptocurrency industry.

The pre-trial hearing is set to debate Binance's "motion to dismiss the case," a way for the defendants to avoid the lawsuit before it begins by arguing that the allegations are not valid.

The judge may agree and decide to dismiss the entire or part of the case. Alternatively, she may allow the case to proceed to trial by a jury.

The case is not just about Binance. Winning this legal battle will equip the SEC with new tools in lawsuits against other major exchanges such as Kraken and Coinbase, reinforcing efforts to become a leading regulatory authority in the US crypto industry.

Allegations Against Binance

The legal battle began in June when the SEC accused Binance of establishing an office in the US without registering as a trading platform, broker-dealer, or clearing agency as required by federal law, while allowing users to buy and sell unregistered securities.

The regulatory agency also alleged that Binance attempted to evade legal oversight, and the executives, including founder and CEO Changpeng Zhao, committed fraud by deceiving investors.

These are serious allegations and could be seen as a relatively easy victory for the regulatory body.

In September, Binance requested a federal court to suspend the case, arguing that the SEC was "attempting to manage through litigation" while the state lacked comprehensive regulatory oversight of cryptocurrencies.

The motion to suspend the case was supposed to be heard on Monday, after severe weather conditions forced the court to postpone the trial.

Not Just Binance

Regulatory experts suggest that for the SEC, the chances of winning will be higher when targeting a specific exchange.

A victory could set a precedent, leading to many other victories in parallel lawsuits against other exchanges such as Coinbase and Kraken. Ultimately, this will help the SEC consolidate its position as the main regulatory agency in the crypto space.

The SEC has also accused Coinbase and Kraken of violating securities laws. Still, they were not charged with fraud, market manipulation, or misleading investors, as was the case with Binance.

That's why the SEC choosing not to settle with Binance late last year hinted at a wise long-term strategy, said legal adviser Aaron Unterman.

The SEC did not take the same path as the Department of Justice and the Commodity Futures Trading Commission (CFTC), which concluded the lawsuit against Binance in November 2023. However, the settlement was a significant victory for the regulatory body.

The event marked the end of Zhao's tenure, who now faces a potential decade-long prison sentence and a record $4 billion fine from the exchange.

But if the SEC agrees to that settlement, "they will miss an opportunity to establish legal precedents related to whether cryptocurrency assets are indeed securities," said Unterman, COO at XReg Consulting.

He said the real issue for the SEC is to address whether they have jurisdiction over cryptocurrency assets and whether crypto is an investment contract, thereby bringing this space under their regulatory purview.

Settlements do not set legal precedents and are not reviewed in enforcement matters.

Coinbase faced the SEC in its own move, requesting to suspend the trial earlier this week and cleverly avoiding questions from the judge at the Manhattan court.

In each case, the SEC's statements about managing cryptocurrencies will be scrutinized, and a victory for Binance could provide an advantage for the regulatory agency.

Binance Trying to Resolve the Issue

For Binance, this lawsuit is becoming a significant hurdle. Since facing the $4 billion fine, the exchange's new CEO, Richard Teng, publicly stated that the exchange had made "mistakes" in the past but has "moved on and resolved those issues with regulators in the US."

Teng mentioned at an event in December: "In the future, Binance is focusing on becoming a user-led organization, but will also be an organization that complies with regulations."

Although having a robust legal platform, Teng's job will not be easy. Currently, he has to lead the exchange towards a future where it complies with financial regulations.

Despite legal troubles, data from DefiLlama shows that cryptocurrency traders are still flocking to Binance, with capital inflows into the exchange reaching around $3.6 billion in January 2024.