Federal Judge Blocks Binance From Forcing Crypto Customers Into Arbitration

A Manhattan federal judge has ruled that Binance, the world's largest cryptocurrency exchange, cannot force customers to settle their legal claims through arbitration. The decision allows investors who lost money on certain digital tokens to pursue their case in court instead of private arbitration.

A Manhattan federal judge delivered a significant blow to cryptocurrency giant Binance on Thursday, ruling that the exchange cannot compel customers to resolve their legal disputes through private arbitration proceedings.

U.S. District Judge Andrew Carter determined that investors who filed claims before February 20, 2019, can proceed with their court case. The judge found that Binance failed to properly inform customers when it changed its user agreement to include mandatory arbitration clauses and eliminate their ability to participate in class-action lawsuits.

According to Carter’s ruling, Binance provided no evidence that it properly “announced” the arbitration requirement or guided users to where they could find this provision in the terms of service. The judge also determined that the class-action waiver language in Binance’s 2019 user terms was unclear and could not be enforced.

The legal action also names Changpeng Zhao, who founded Binance and previously served as its chief executive officer. Representatives for both Binance and Zhao have not yet provided responses to requests for comment on the ruling.

Companies often favor arbitration over traditional court proceedings because these private processes can stay confidential, limit evidence collection opportunities, and reduce legal expenses.

The customers bringing the lawsuit claim they suffered financial losses on seven specific cryptocurrency tokens: ELF, EOS, FUN, ICX, OMG, QSP and TRX. They allege that Binance violated federal and state securities regulations by not properly warning investors about the “significant risks” associated with purchasing these digital assets, and they are seeking to recover their investment losses.

This case has had a lengthy court history. Carter initially dismissed the lawsuit in 2022, but a federal appeals court reinstated the case two years later, allowing it to move forward.