A federal judge in New York has ruled that Binance cannot require certain customers to arbitrate claims tied to alleged crypto token losses, allowing portions of a proposed class action lawsuit to proceed in court. The decision marks a setback for the world’s largest cryptocurrency exchange as it faces ongoing legal scrutiny in the United States.
U.S. District Judge Andrew Carter determined that Binance did not provide sufficient notice when it modified its terms of use in 2019 to include a mandatory arbitration clause and a waiver of the right to pursue class action litigation. According to the ruling, customers whose claims arose on or before February 20, 2019 may continue to pursue their case in federal court.
The judge stated there was no clear evidence that Binance adequately informed users of the addition of the arbitration provision or directed them to where the updated terms could be reviewed. He also found that the class action waiver language in the 2019 terms was ambiguous and therefore unenforceable.
Customers involved in the lawsuit allege that Binance illegally sold unregistered digital tokens that later suffered significant losses in value. The complaint centers on seven tokens, including ELF, EOS, FUN, ICX, OMG, QSP and TRX. Plaintiffs claim the exchange failed to warn buyers about the substantial risks associated with purchasing these assets, as required under federal and state securities laws.
The case has had a complex procedural history. In 2022, Judge Carter dismissed the lawsuit. However, a federal appeals court later revived the claims, allowing the litigation to continue. In November, the plaintiffs agreed to dismiss allegations related to transactions occurring after February 20, 2019, narrowing the scope of the dispute.
Binance has stated that it intends to vigorously defend the remaining claims, describing them as without merit. Changpeng Zhao, the exchange’s founder and former chief executive, is also named as a defendant in the case.
Arbitration clauses are commonly included in digital platform agreements because arbitration proceedings are typically private, may limit discovery and can reduce litigation costs. Companies often prefer arbitration to public court proceedings, especially in complex financial disputes.
The ruling does not resolve the underlying allegations regarding the sale of unregistered tokens, but it allows the case to move forward in a public judicial forum for the specified time period. The outcome could influence how cryptocurrency exchanges draft and update their user agreements, particularly regarding arbitration and class action waivers.
As regulatory and legal oversight of digital asset platforms intensifies, court decisions on contractual enforceability are becoming increasingly significant for both exchanges and investors.
