A federal judge in Manhattan on Thursday denied Binance's request to compel arbitration for customers who allege the cryptocurrency exchange sold unregistered tokens that subsequently plunged in value. U.S. District Judge Andrew Carter concluded that Binance failed to give adequate notice to customers that its revised terms of use required arbitration and waived the right to sue in a class action.
Judge Carter found no evidence that Binance "announced" the inclusion of an arbitration provision or that customers were directed in the terms of use to where such a provision might be found. The judge also described the purported class-action waiver in Binance's 2019 terms of use as ambiguous and therefore unenforceable.
The lawsuit names Binance founder and former chief executive Changpeng Zhao as a defendant along with the exchange. Lawyers for Binance and Zhao did not immediately reply to requests for comment.
The plaintiffs in the case are customers who experienced losses on seven tokens - ELF, EOS, FUN, ICX, OMG, QSP and TRX. They contend Binance failed to inform buyers that those purchases carried "significant risks," as required under federal and state securities laws, and are seeking to recover the amounts they paid.
Binance had sought to move these disputes into arbitration, an option some defendants favor because arbitration can remain private, can make evidence gathering more difficult for plaintiffs, and can be less expensive than litigation in court. Judge Carter's ruling prevents Binance from forcing arbitration for claims that arose by Feb. 20, 2019, based on the judge's finding about inadequate notice.
The case has a procedural history that includes a dismissal by Judge Carter in 2022, which a federal appeals court later reversed two years after that dismissal. With the appeals court decision restoring the case, Carter's latest order addresses whether investors must pursue claims in arbitration or may proceed in court for the time window specified.
The judge's findings focus narrowly on the exchange's communication of the contractual changes and the clarity of the 2019 terms, leaving in place the plaintiffs' ability to litigate claims tied to the tokens and timeframe identified.