22-972 Williams v. Binance

United States Court of Appeals For the Second Circuit

August Term 2022

Argued: April 12, 2023 Decided: March 8, 2024

No. 22-972

CHASE WILLIAMS, individually and on behalf of all others similarly situated, Plaintiff-Appellant,

JD ANDERSON, COREY HARDIN, ERIC LEE, individually and on behalf of all others similarly situated, BRETT MESSIEH, DAVID MUHAMMAD, RANJITH THIAGARAJAN, TOKEN FUND I LLC, Lead-Plaintiffs-Appellants,

v.

BINANCE, CHANGPENG ZHAO, Defendants-Appellees,

YI HE, ROGER WANG, Defendants.

Appeal from the United States District Court for the Southern District of New York No. 20-cv-2803, Andrew L. Carter, Judge. Before: LEVAL, CHIN, and NATHAN, Circuit Judges.

Plaintiffs-Appellants used Defendants-Appellees’ website, Binance.com, to purchase a type of crypto-asset called “tokens.” They allege that by selling these tokens without registration, Binance violated Section 12(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(1), and the “Blue Sky” securities laws of various states. Plaintiffs also seek recission of contracts they entered into with Binance under Section 29(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78cc(b). The district court dismissed Plaintiffs’ claims as impermissible extraterritorial applications of these statutes and also dismissed their federal claims as untimely. We conclude that Plaintiffs have adequately alleged that their transactions on the Binance exchange were domestic transactions and that therefore the application of federal and state securities laws here was not impermissibly extraterritorial. We further conclude that Plaintiffs’ federal claims did not accrue until after they made the relevant purchases, and therefore their claims arising from purchases made during the year before filing suit are timely. Accordingly, we REVERSE and REMAND as to the claims challenged on appeal. ________

JORDAN GOLDSTEIN (David Coon, on the brief), Selendy Gay Elsberg PLLC, New York, NY, for Plaintiffs-Appellants. JAMES P. ROUHANDEH (Daniel J. Schwartz, Marie Killmond, on the brief), Davis Polk & Wardwell LLP, New York, NY, for Defendants-Appellees. ________

NATHAN, Circuit Judge:

Plaintiffs-Appellants, purchasers of crypto-assets on an international

electronic exchange called Binance, appeal the dismissal of this putative class

action against Defendants-Appellees Binance and its chief executive officer

2 Changpeng Zhao. Plaintiffs seek damages arising from Binance’s alleged violation

of Section 12(a)(1) of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77l(a)(1),

which they claim occurred when Binance unlawfully promoted, offered, and sold

billions of dollars’ worth of crypto-assets called “tokens,” which were not

registered as securities. Plaintiffs also seek recission of contracts they entered into

with Binance under Section 29(b) of the Securities and Exchange Act of 1934

(Exchange Act), 15 U.S.C. § 78cc(b), on the basis that Binance allegedly contracted

to sell securities without being registered as a securities exchange or broker-dealer.

Lastly, Plaintiffs raise claims under “Blue Sky” laws, which are state statutes

designed to protect the public from securities fraud.

The district court concluded that (1) Plaintiffs’ claims constitute an

impermissible extraterritorial application of securities law under Morrison v.

National Australia Bank Ltd.,

(2010), and (2) Plaintiffs’ federal claims

are also untimely under the applicable statutes of limitations. On appeal, Plaintiffs

argue that they have plausibly alleged that the transactions at issue are subject to

domestic securities laws and that their federal claims involving purchases made

3 during the year before filing suit are timely. 1 We agree. First, we conclude that

Plaintiffs have plausibly alleged that the transactions at issue are domestic

transactions subject to domestic securities laws because the parties became bound

to the transactions in the United States, and therefore irrevocable liability attached

in the United States. Second, we conclude that these claims accrued at the time

Plaintiffs purchased or committed to purchase the tokens, and thus Plaintiffs’

claims arising from transactions in tokens during the year before filing the

complaint are timely. Accordingly, we REVERSE and REMAND for further

proceedings as to the claims challenged on appeal.

BACKGROUND

I. Facts

The following facts are taken from Plaintiffs’ allegations in their operative

complaint and documents that it incorporates. See Chambers v. Time Warner, Inc.,

, 152–53 (2d Cir. 2002). Binance is an online platform where a variety

1Plaintiffs do not appeal the district court’s dismissal of their claims concerning tokens BNT, SNT, KNC, LEND, and CVC. Nor do they appeal the district court’s decision as to the timeliness of their federal claims concerning tokens ELF, FUN, ICX, OMG, and QSP. Accordingly, such claims are not before us.

4 of crypto-assets can be purchased and sold. It represents itself as the largest such

exchange in the world. By July 2017, Binance had been founded in China and had

launched its digital asset exchange. Within less than a year, it moved its titular

headquarters first to Japan and then to Malta, seeking more favorable regulatory

environments. Nonetheless, Binance rejects having any physical headquarters in

any geographic jurisdiction. In February 2020, in response to Maltese regulators

denying that Binance was a “Malta-based cryptocurrency company,” Binance

founder and CEO, co-defendant Changpeng Zhao stated:

Binance.com is not headquartered or operated in Malta . . . There are misconceptions some people have on how the world must work . . . you must have offices, HQ, etc. But there is a new world with blockchain now . . . Binance.com has always operated in a decentralized manner as we reach out to our users across more than 180 nations worldwide.

App’x at 171–72 ¶¶ 27–28. One of those nations is the United States, where

Binance now has a substantial presence, with servers, employees, and customers

throughout the country. Binance never registered as a securities exchange or a

broker-dealer of securities in the United States.

5 Plaintiffs bring claims on behalf of themselves and a class of similarly

situated investors who used Binance to purchase crypto-assets known as “tokens”

from seven categories: EOS, TRX, ELF, FUN, ICX, OMG, and QSP (collectively, the

Tokens). 2 Each named plaintiff purchased one or more of the Tokens on Binance,

placing orders on the electronic platform from their state or territory of residence:

Texas, Nevada, New York, Florida, California, and Puerto Rico.

As with most crypto-assets, ownership of the Tokens is tracked on a

blockchain, a decentralized ledger that records each transaction. Just as banks

settle and clear transactions moving between traditional currency accounts,

blockchains track transactions in crypto-assets. A critical difference is that

blockchains typically operate through a decentralized process: every computer

running on a given blockchain independently tracks and clears transactions to

validate the crypto-asset’s ownership. Blockchains therefore allow for increased

2 Plaintiffs initially brought claims regarding twelve tokens, but on appeal they challenge only the district court’s dismissal of their claims regarding these seven tokens.

6 security, because the decentralized nature of a blockchain means that any data

recorded on the ledger cannot be altered.

Plaintiffs allege that the Tokens are a type of crypto-asset called “security

tokens.” Binance does not dispute—at least for the purposes of this appeal—that

the tokens at issue are properly classified as “securities” as the term is used in the

relevant federal and state securities laws. “Security tokens,” as described by

Plaintiffs in the complaint, are tokens issued to raise capital for the issuer and

provide the token holder with some form of future interest in the issuer’s project

to create the platform and software required for its use. That future interest could

increase in value if the token’s creators are successful in their endeavor. But unlike

traditional securities, security tokens do not give the token holder ownership or a

creditor interest in any corporate entity.

Security tokens also differ from other types of crypto-assets. Unlike Bitcoin

and Ethereum, security tokens are not designed to facilitate transactions or serve

as a long-term store of value, but rather to raise capital for an enterprise without

granting the holder ownership in any corporate entity. And unlike “utility

7 tokens,” security tokens do not grant the holder use and access to a particular

service or product offered by the issuer. Security tokens are therefore distinct from

other classes of crypto-assets that have some present tangible use beyond their

potential to appreciate.

The Tokens at issue here are “ERC-20 tokens,” meaning they were all

designed on the Ethereum blockchain with a programming language called the

ERC-20 protocol. Between 2017 and 2018, many ERC-20 tokens were created and

sold by third party issuers in initial coin offerings (ICOs), which collectively raised

nearly $20 billion. Typically, each ICO was accompanied by a “whitepaper,”

which included both advertising and a technical blueprint for the proposed project

associated with the token. Plaintiffs allege that these whitepapers did not include

the warnings that SEC registration statements would have included, and that

registration statements for the Tokens were never filed with the SEC. After their

ICOs, each of the Tokens was listed on Binance for secondary-market trading.

Investors could buy the tokens through the Binance platform using other crypto-

assets or traditional currencies.

8 Plaintiffs allege that they each purchased Tokens on Binance pursuant to its

Terms of Use, and that they paid Binance fees for the use of its exchange. They

allege that all of their activities to transact on Binance were undertaken from each

of their U.S. state or territory of residence. When users register with Binance, they

are required to accept Binance’s Terms of Use upon registration. Once users set

up accounts, they can place buy orders to purchase tokens on the Binance

platform, which are then matched with sell orders to complete a transaction.

Plaintiffs allege that their trade orders were matched on, and their account data

was stored on, servers hosting the Binance platform—the vast majority of which

were located in the United States. The Terms of Use in effect during the class

period did not require Plaintiffs to place any particular trade order. But the Terms

dictated that once a trade order was placed, Binance had the right to reject a user’s

request to cancel it. Moreover, pursuant to the Terms, once matching occurred,

the order could not be cancelled at all.

Plaintiffs allege that Binance directly targeted the U.S. market with

advertising and customer support specifically aimed at U.S. users. Although

9 Binance ostensibly cut off access to its platform for U.S. users in September 2019,

Plaintiffs allege that it simultaneously advised U.S.-based purchasers how to

circumvent its own restrictions using virtual private networks (VPNs), after which

several of the Plaintiffs continued trading on Binance from the United States.

According to Plaintiffs, in 2019, Zhao tweeted that the use of VPNs is “a necessity,

not optional” in order to trade tokens on Binance. App’x at 184 ¶ 82.

Eventually, Plaintiffs’ experience trading Tokens on Binance turned sour.

They allege that “the vast majority” of Tokens they purchased on Binance “turned

out to be empty promises,” “all of the Tokens are now trading at a tiny fraction of

their 2017–2018 highs,” and “investors were left holding the bag when these tokens

crashed.” App’x at 164 ¶ 6.

II. The Proceedings Below

Plaintiffs initiated this action on April 3, 2020, seeking recission or damages,

interest, and attorney’s fees in compensation for Defendants’ alleged violations of

federal and state securities laws. Plaintiffs filed the operative complaint on

December 15, 2020. The 327-page complaint asserts 154 causes of action under the

10 Securities Act, the Exchange Act, and the Blue Sky statutes of 49 different states,

the District of Columbia, and Puerto Rico.

Defendants filed a motion to dismiss or, in the alternative, to compel

arbitration. On March 31, 2022, the district court granted the motion to dismiss.

See Anderson v. Binance, No. 20-cv-2803,

(S.D.N.Y. Mar. 31, 2022).

The district court held that all of Plaintiffs’ claims, including those brought under

state Blue Sky securities laws, were impermissibly extraterritorial.

at *4–5. The

district court also concluded that Plaintiffs’ federal claims under Section 12(a)(1)

of the Securities Act and Section 29(b) of the Exchange Act were untimely.

at

*2–4. Additionally, the district court dismissed claims brought under the Blue Sky

laws of states where none of the named class members resided, concluding there

was “an insufficient nexus between the allegations and those jurisdictions.” Id. at

*4. Plaintiffs timely appealed each basis for dismissal, except the district court's

determination that equitable doctrines did not delay accrual of Plaintiffs’ federal

claims arising from transactions outside of the one-year period before the lawsuit

was filed.

11 DISCUSSION

We hold that each of the district court’s bases for dismissing Plaintiffs’

claims that are before us on appeal was erroneous. First, Plaintiffs have adequately

alleged that their claims involved domestic transactions because they became

irrevocable within the United States and are therefore subject to our securities

laws. Second, Plaintiffs’ federal claims are timely insofar as they relate to

transactions that occurred during the year before they filed suit because their

federal claims all require a completed transaction and therefore could not have

accrued before the transactions were made. Finally, we vacate as premature the

district court’s conclusion that there was an insufficient nexus between the named

Plaintiffs’ claims and the states whose laws govern the claims of putative absent

class members.

I. Extraterritoriality

At the outset, the parties dispute whether the domestic securities laws apply

to the claims at issue or whether applying domestic law would be impermissibly

extraterritorial. “It is a longstanding principle of American law that legislation of

Congress, unless a contrary intent appears, is meant to apply only within the

12 territorial jurisdiction of the United States.” Morrison v. Nat’l Australia Bank Ltd.,

(2010) (internal quotation marks omitted). Therefore, “[w]hen a

statute gives no clear indication of an extraterritorial application, it has none.”

In Morrison, the Supreme Court invoked the presumption against

extraterritoriality to interpret the Exchange Act as applying only to “[1] securities

listed on domestic exchanges, and [2] domestic transactions in other securities.”

. The Court reached this conclusion as a matter of statutory interpretation,

and by considering international comity and the need to avoid “[t]he probability

of incompatibility with the applicable laws of other countries.”

.

Although Morrison involved the Exchange Act, we have applied a similar

framework to Securities Act claims as well as claims under state Blue Sky laws.

See Univs. Superannuation Scheme Ltd. v. Petróleo Brasileiro S.A. Petrobras (In re

Petrobras Sec.),

(2d Cir. 2017) (Securities Act); Fed. Hous. Fin.

Agency v. Nomura Holding Am., Inc.,

, 156–58 (2d Cir. 2017) (state Blue

Sky laws).

13 Binance contends that neither Morrison category applies because the

securities at issue here are not listed on domestic exchanges and the transactions

are not domestic. Therefore, according to Binance, Plaintiffs seek to impermissibly

apply the relevant statutes extraterritorially. We disagree and conclude that

Plaintiffs plausibly alleged that the transactions at issue were “domestic

transactions in other securities” under Morrison.

In light of Morrison, we have explained that “to sufficiently allege the

existence of a ‘domestic transaction in other securities,’ plaintiffs must allege facts

indicating that irrevocable liability was incurred or that title was transferred

within the United States.” Absolute Activist Value Master Fund Ltd. v. Ficeto,

(2d Cir. 2012). Irrevocable liability attaches when parties “becom[e]

bound to effectuate the transaction or enter[] into a binding contract to purchase

or sell securities.” Miami Grp. v. Vivendi S.A. (In re Vivendi, S.A. Sec. Litig.),

(2d Cir. 2016) (internal quotation marks omitted). In other words,

irrevocable liability attaches “when the parties to the transaction are committed to

one another,” or when “in the classic contractual sense, there was a meeting of the

14 minds of the parties.” Absolute Activist,

(quoting Radiation Dynamics,

Inc. v. Goldmuntz,

(2d Cir. 1972)).

To determine whether a transaction is domestic, courts must therefore

consider both when and where the transaction became irrevocable. But this is not

always a simple task. Indeed, this task is particularly difficult when a transaction

takes place over an exchange that claims to have no physical location in any

geographic jurisdiction and not be subject to the oversight of any country’s

regulatory authority. We have recognized, however, that irrevocable liability may

attach in “more than one location,” Fed. Hous. Fin. Agency,

, and at

more than one time, see Myun-Uk Choi v. Tower Rsch. Cap. LLC,

(2d

Cir. 2018), because there is always more than one side to any given transaction.

Here, we find that Plaintiffs plausibly alleged facts showing that two

transactional steps giving rise to an inference of irrevocable liability occurred in

the United States. First, the transactions at issue were matched, and therefore

became irrevocable, on servers located in the United States. Second, Plaintiffs

15 transacted on Binance from the United States, and pursuant to Binance’s Terms of

Use, their buy orders became irrevocable when they were sent.

A. Matching

We begin with the matching of Plaintiffs’ buy offers with sellers on servers

hosting Binance’s platform. In the absence of an official locus of the Binance

exchange, we conclude it is appropriate to locate the matching of transactions

where Binance has its servers. We therefore hold that irrevocable liability was

incurred in the United States because Plaintiffs plausibly alleged facts allowing the

inference that the transactions at issue were matched on U.S.-based servers.

We have previously considered the application of Morrison in the context of

securities traded over an electronic intermediary exchange, like the securities at

issue in this litigation. In Myun-Uk Choi v. Tower Research Capital LLC, the plaintiffs

executed trades in Korea Exchange futures contracts, which were “listed and

traded on CME Globex, an electronic [Chicago Mercantile Exchange (CME)]

platform located in Aurora, Illinois.”

(internal quotation marks

omitted). We held that the plaintiffs plausibly alleged that those transactions were

domestic because the plaintiffs incurred irrevocable liability when their trade

16 offers were matched with offers from counterparties on the Illinois-based

platform.

. 2 The defendants there argued that irrevocable liability did not

attach until trades were cleared and settled on the Korea Exchange in South Korea,

the morning after buy and sell orders were “matched” on CME Globex.

at 67–

68. But we explained that “[t]his view evinces a fundamental misunderstanding

of Plaintiffs’ allegations and exchange trading generally.”

(emphasis added).

We said that while “liability might ultimately attach between the buyer/seller and

the [Korea Exchange] upon clearing, that does not mean liability does not also

attach between the buyer and seller at matching prior to clearing.”

We

explained that

[t]his is analogous to the traditional practice, prior to the advent of remote algorithmic high-speed trading, in which buyers and sellers of commodities futures would reach an agreement on the floor of the exchange and then subsequently submit their trade to a clearinghouse for clearing and settling. Just as the meeting of the minds previously occurred on the exchange floor, Plaintiffs plausibly allege that there is a similar meeting of the minds when the minds of the [Korea Exchange] night market parties meet on CME Globex.

2Choi involved claims under the Commodity Exchange Act but applied the same framework for evaluating the exterritorial reach of domestic securities laws under Morrison at issue here. Choi, 890 F.3d at 66–67; see also Loginovskaya v. Batratchenko,

, 271–74 (2d Cir. 2014).

17

(cleaned up).

Here, as in Choi, Plaintiffs allege that they purchased and sold securities over

an electronic exchange, though here these transactions were subsequently

recorded on the Ethereum blockchain, which has no centralized location.

Consistent with our reasoning in Choi, the parties here agree that at least one time

at which irrevocable liability attaches is at the time when transactions are

“matched.” See Reply Br. at 5; Appellees’ Br. at 4, 32; see also Choi,

(“[I]n the classic contractual sense, parties incur irrevocable liability on . . . trades

at the moment of matching.” (cleaned up)).

But where did that matching take place? In Choi there was no dispute that

trades were matched “on CME Globex” and that CME Globex was located in

Illinois.

. This appeal presents a more difficult case than Choi because

the parties dispute where matching occurs when it takes place on Binance, an online

exchange that purports to have no physical location.

We conclude that, at this early stage of the litigation, Plaintiffs have

plausibly alleged that matching occurred in the United States. The complaint

alleges that online crypto-asset exchanges such as Binance serve a similar function

18 as “traditional exchanges in that they provide a convenient marketplace to match

buyers and sellers of virtual currencies,” such as the Tokens purchased by

Plaintiffs. App’x at 175 ¶ 46. Defendants agree that “the complaint’s allegations

and the documents it incorporates by reference establish that matching occurred

on the Binance exchange.” Appellees’ Br. at 33. But Defendants contend, since

Plaintiffs acknowledge that Binance is decentralized, that the Binance exchange

was “concededly . . . not in the United States.” Id.; see also id. at 35 (arguing that

“matching and irrevocable liability occurred abroad on the Binance platform, . . .

[which] is not in the United States.”). At oral argument, Binance’s counsel

repeated this argument but also conceded that the location of Binance’s servers

may be relevant to determining where matching occurs on the Binance platform.

Oral Arg. at 26:00–37:40. We reject Binance’s argument that Plaintiffs pled

themselves out of court by noting Binance’s intentional efforts to evade the

jurisdiction of regulators. Binance operates by “match[ing] buyers and sellers of

virtual currencies.” App’x at 175 ¶ 46. Even if the Binance exchange lacks a

physical location, the answer to where that matching occurs cannot be “nowhere.”

19 Rather, we conclude that the complaint plausibly alleges that matching

occurred on “the infrastructure Binance relies on to operate its exchange.” App’x

at 253 ¶ 327. According to Plaintiffs’ allegations, much of that infrastructure “is

located in the United States.” Id. Specifically, Plaintiffs allege that “Binance is

hosted on computer servers and data centers provided by Amazon Web Services

(AWS), a cloud computing company that is located in the United States”; “a

significant portion, if not all, of the AWS servers and [associated data centers and

support services] that host Binance are located in California”; and “[u]pon

information and belief, most or all of Binance’s digital data is stored on servers

located in Santa Clara County, California.” App’x at 170–71 ¶ 24.

Moreover, Plaintiffs allege that the fact that their purchase orders were

submitted from locations in the United States renders it more plausible that the

trades at issue were matched over Binance’s servers located in the United States,

as opposed to Binance’s servers located elsewhere. At this stage, Plaintiffs need

merely plead “a plausible claim for relief.” Ashcroft v. Iqbal,

(2009). Construing Plaintiffs’ allegations regarding the servers in the light most

20 favorable to them, we conclude that they have alleged facts that make it plausible

that their trade orders were matched in the United States.

To be sure, our cases involving exchange-mediated securities trades, such

as Choi, have looked to the official location of the exchange on which matching

occurred to determine the situs of irrevocable liability. In cases involving

traditional exchanges, there is often no dispute over where the exchange is located,

and therefore where matching takes place. This is particularly so when the

exchange is registered in a certain country and therefore has intentionally

subjected itself to that sovereign’s jurisdiction. While it may not always be

appropriate to determine where matching occurred solely based on the location of

the servers the exchange runs on, it is appropriate to do so here given that Binance

has not registered in any country, purports to have no physical or official location

whatsoever, and the authorities in Malta, where its nominal headquarters are

located, disclaim responsibility for regulating Binance.

Our conclusion might be different were we faced with plaintiffs seeking to

apply United States securities laws based on the happenstance that a transaction

21 was initially processed through servers located in the United States despite all

parties to the transaction understanding that they were conducting business on a

foreign-registered exchange. The application of federal securities laws in that

situation would squarely implicate the comity concerns that animated Morrison.

See

. But since Binance notoriously denies the applicability of any

other country’s securities regulation regime, and no other sovereign appears to

believe that Binance’s exchange is within its jurisdiction, the application of United

States securities law here does not risk “incompatibility with the applicable laws

of other countries” and is consistent with the test articulated in Morrison and with

the principles underlying Morrison.

We therefore hold that under these

circumstances, the location of the servers on which trades are matched by Binance

is deemed to be a location of the transaction. Accordingly, Plaintiffs have

adequately alleged domestic transactions based on their allegations that matching

occurred on Binance’s servers located in the United States.

B. Plaintiffs’ Submission of Trades and Payments on Binance

We agree that Plaintiffs plausibly alleged that the transactions at issue are

domestic for a second, interrelated reason. Because Binance disclaims having any

22 location, Plaintiffs have plausibly alleged that irrevocable liability attached when

they entered into the Terms of Use with Binance, placed their purchase orders, and

sent payments from the United States.

As discussed above, in Choi, we noted that irrevocable liability may attach

between different parties and intermediaries in a securities transaction at more

than one transactional step. See 890 F.3d at 67–68. Just as in Choi, where

irrevocable liability attached first between the parties on the Illinois-based night

market and then later “between the buyer/seller and the [Korea Exchange] upon

clearing,” here Plaintiffs’ allegations allow for the inference that irrevocable

liability attached at multiple points in the transaction—first when they submitted

their purchase offers to Binance, and later when Binance matched their offers with

seller counterparties. Id. at 68.

Here, because the Binance exchange disclaims having any physical location,

we have particular reason to consider other factors that our cases have found

relevant to the irrevocable liability analysis. In City of Pontiac Policemen’s &

Firemen’s Retirement Systems v. UBS AG, we explained that “in the context of

23 transactions not on a foreign exchange,” our cases look to “facts concerning the

formation of the contracts, the placement of purchase orders, the passing of title, or

the exchange of money” to determine when and where an investor becomes

irrevocably bound to complete a transaction.

, 181 n.33 (2d Cir. 2014)

(quoting Absolute Activist, 677 F.3d at 69–70 (cleaned up)). While we have placed

more emphasis on these factors when dealing with transactions that did not occur

on an official exchange, we have reason here to consider where Plaintiffs’ trades

originated given that Binance expressly disclaims having any physical location,

foreign or otherwise. In Giunta v. Dingman, we found that irrevocable liability

occurred in New York because that was where the parties met in person, where

one party received telephone calls from the other while they were negotiating a

securities contract, where they sent the terms of the agreement, and where funds

were transferred from.

(2d Cir. 2018). Similarly, in Federal

Housing Financial Agency, we held that evidence that employees of Fannie Mae and

Freddie Mac worked in the District of Columbia and Virginia, and therefore

received emailed offer materials there, supported the inference that irrevocable

24 liability attached in those places. 873 F.3d at 156–58; see also, e.g., United States v.

Vilar,

, 76–78 (2d Cir. 2013) (looking to location where party executed

documents necessary to make investment and location from where money was

sent).

Applying a similar analysis to the allegations here, irrevocable liability was

incurred when Plaintiffs entered into the Terms of Use with Binance, placed their

trade orders, and sent payments, all of which they claim occurred from their home

states within the United States. When Plaintiffs sent buy orders and payments on

the Binance platform, they irrevocably “committed to the investment[s] while in”

their states of residence. Vilar,

. “[A]s a practical matter, [Plaintiffs

were] contractually obligated” to complete the transactions after committing to

them on the Binance exchange and “could not, on [their] own accord, revoke.”

Giunta,

. The inference that Plaintiffs could not revoke once they

placed a trade on Binance is also supported by allegations regarding Binance’s

Terms of Use, in which Binance “reserves the right to reject any cancellation

reques[t] related to” a submitted trade order. App’x at 605.

25 True, in City of Pontiac, we held that the “mere placement of a buy order in

the United States for the purchase of foreign securities on a foreign exchange” was

not, “standing alone,” sufficient to allege that a purchaser incurred irrevocable

liability in the United States.

. But here, Binance’s Terms of Use,

which remove the trader’s ability to unilaterally revoke the trade prior to

execution, plus the additional actions Plaintiffs took, including making domestic

payments, provide more. Moreover, as explained above, City of Pontiac concerned

trades executed over a foreign Swiss exchange, whereas here the relevant

exchange disclaims any location, foreign or otherwise. So, as noted above, the

sovereignty and comity concerns that at least partially motivate the careful

policing of the line between foreign and domestic transactions in cases like City of

Pontiac and Morrison are less present in a case like this. 3

3 We do not mean to imply that in such circumstances, irrevocability can attach in only one country. It is entirely possible that such a transaction might fall under the laws of more than one jurisdiction, especially as the result of the efforts of the exchange, or of participants, to have the transaction be subject to no country's legislative jurisdiction.

26 Accordingly, we hold that at this stage in the litigation, Plaintiffs have

plausibly alleged that they engaged in domestic transactions in unlisted

securities. 4

II. Timeliness

The parties also dispute whether the district court correctly held that

Plaintiffs’ federal claims under Section 12(a)(1) of the Securities Act and Section

29(b) of the Exchange Act were untimely. As a preliminary matter, Plaintiffs do

not press an argument for equitable tolling on appeal, and they acknowledge that

their claims relating to most of the Tokens are untimely. However, a subset of

Plaintiffs argue that they have timely federal claims because they made purchases

of two of the Tokens, EOS and TRX, within the year before filing their original

complaint on April 3, 2020. 5 We hold that Plaintiffs’ claims under each of the

federal statutes did not accrue until they could have filed suit, which was only

4In light of this conclusion, we need not and do not reach Plaintiffs’ alternative arguments for concluding that their claims concern domestic transactions. 5Specifically, these plaintiffs are Hardin, Muhammad, Thiagarajan, Token Fund I LLC, and Williams.

27 after they made their purchases. Therefore, we reverse the dismissal of Plaintiffs’

claims arising from purchases made during the year before they filed this lawsuit.

A. Section 12(a) Claims

A claim under Section 12(a)(1) of the Securities Act for solicitation of an

unregistered security must be brought “within one year after the violation upon

which it is based.” 15 U.S.C. § 77m (Section 13). A half-century ago, we held that

Section 13’s one-year statute of limitations does not begin to run on an illegal offer

until the plaintiff acquires the security. See Diskin v. Lomasney & Co.,

,

875–76 (2d Cir. 1971). In Diskin, Judge Friendly explained that “although § 13

dates” the running of the statute of limitations “from the ‘violation’ in cases of

claims under § 12[(a)](1), it would be unreasonable to read § 13 as starting the short

period for an action at a date before the action could have been brought.” Id.; see

also Wigand v. Flo-Tek, Inc.,

, 1033 n.5 (2d Cir. 1979) (holding, based

on Diskin, that “the limitations period . . . begins to run only after the sale” of a

security following an illegal solicitation in Section 12(a)(2) actions). Diskin is

28 binding law. Applied here, that means Plaintiffs have timely claims against

Binance under Section 12(a)(1) for its solicitation of their purchase of EOS and TRX.

Defendants fail to distinguish or discredit Diskin. First, they argue Diskin

only controls in cases where a single entity both solicited and sold securities as

part of a single transaction. However, Binance promoted, intermediated, and

earned money from the transactions of the Tokens. The mere fact that Binance was

not a direct counter-party to the transactions is an insufficient distinction,

particularly given Diskin’s statement that “Congress quite obviously meant to

allow rescission or damages in the case of illegal offers as well as of illegal sales.”

Diskin,

. Diskin’s interpretation of Section 13 was driven by a

concern with avoiding the “extreme case[]” of “a running of the statute of

limitations before the claim had even arisen,” which is exactly what would result

from adopting Defendants’ theory here.

Next, Defendants argue that Diskin’s interpretation of Section 13 is incorrect

as a textual matter. They point out that Section 13 starts the running of the one-

year limitations period from “the violation,” not from a “purchase or sale,” and that

29 there are only two ways to violate Section 12: (1) “pass[ing] title, or other interest

in the security, to the buyer for value,” or (2) “successfully solicit[ing] the

purchase” of the security. Pinter v. Dahl,

(1988). Based on

these premises, Defendants assert that the last “violations” Plaintiffs allege

relating to EOS or TRX date back to November 2018 and February 2019,

respectively, when Binance republished third-party reports about each token.

Since both of these dates were more than a year before April 2020, when Plaintiffs

filed suit, Binance claims that under the plain text of the statute, the statute of

limitations ran before Plaintiffs sued.

This line of reasoning was equally available when Diskin was decided, but

as described above, Judge Friendly rejected such a wooden interpretation of

Section 13. Instead, he interpreted it in such a way as to effectuate Congress’s

purpose of protecting all investors who fall victim to illegal solicitations and bring

suit within a year of doing so, not just those who happen to make their purchases

within a year of the defendant’s unlawful acts. We are not free to upset our

respected predecessor’s conclusion or ignore Diskin. See Adams v. Zarnel (In re

30 Zarnel),

(2d Cir. 2010) (“This panel is bound by the decisions of

prior panels until such time as they are overruled either by an en banc panel of our

Court or by the Supreme Court.” (internal quotation marks omitted)).

Furthermore, Diskin makes sense of the fact that Section 13 contains both a

statute of limitations and a statute of repose. The latter protects defendants and

provides that no action can “be brought to enforce a liability created under section

[11 or 12(a)(1)] more than three years after the security was bona fide offered to

the public.” 15 U.S.C § 77m. As opposed to statutes of repose, “[s]tatutes of

limitations are designed to encourage plaintiffs to pursue diligent prosecution of

known claims.” Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc.,

(2017)

(internal quotation marks omitted). Thus, “limitations periods begin to run when

the cause of action accrues—that is, when the plaintiff can file suit and obtain relief.”

at 504–05 (internal quotation marks omitted) (emphasis added). And “a

prospective buyer has no recourse against a person who touts unregistered

securities to him if he does not purchase the securities.” Pinter,

. It

31 would make little sense to begin the running of Section 12’s statute of limitations

before a plaintiff made the purchase allowing her to sue.

On the other hand, a statute of repose “begins to run from the defendant’s

violation.” City of Pontiac Gen. Emps.’ Ret. Sys. v. MBIA, Inc. (MBIA),

(2d Cir. 2011). “[S]tatutes of repose are enacted to give more explicit and

certain protection to defendants,” and thus run from “the date of the last culpable

act or omission of the defendant.” Cal. Pub.,

. Defendants’ reading

of Section 13 would transform its statute of limitations into a duplicative, and

shorter, statute of repose capable of running before any purchase has been made

and thus before any claim has accrued. We rejected such a reading fifty years ago

and do so again today. We therefore conclude, based on precedent and statutory

context, that Plaintiffs’ claims as to EOS and TRX purchases made after April 3,

2019 are timely.6

6We therefore do not resolve whether, by continuing to offer TRX and EOS on its website right up until the complaint was filed, Binance engaged in an ongoing violation of the Securities Act. See Wilson v. Saintine Expl. & Drilling Corp.,

, 1126 (2d Cir. 1989) (holding that “the ministerial act of mailing” offer materials at the seller’s direction did not constitute solicitation).

32 B. Section 29(b) Claims

For similar reasons, we reverse the district court’s dismissal of Plaintiffs’

claims for recission of the EOS and TRX purchases made after April 3, 2019 under

Section 29(b) of the Exchange Act. Section 29(b) states that “[e]very contract made

in violation of any provision of this chapter . . . the performance of which involves

the violation of, or the continuance of any relationship or practice in violation of,

any provision of this chapter . . . shall be void . . . .” 15 U.S.C. § 78cc(b). Plaintiffs

alleged that their contracts with Binance are voidable under Section 29(b) because

Binance violated Section 5 of the Exchange Act by operating as an unregistered

exchange, 15 U.S.C. § 78e, and Section 15(a)(1) of the Exchange Act by operating

as an unregistered broker-dealer, 15 U.S.C. § 78o(a)(1). Unlike Section 12(a), this

provision does not contain an express cause of action tied to a statute of limitations

but the parties agree that claims for recission under Section 29(b) expire one year

after they accrue. Their dispute is over when accrual occurs. We conclude that, as

with Section 12(a), Plaintiffs’ claims accrued, if at all, only after they made or

committed to making their purchases.

33 As a threshold matter, we assume without deciding that Binance is correct

that the relevant contract to be rescinded is Binance’s Terms of Use and that

Plaintiffs did not adequately allege that they entered into new, implied contracts

every time Plaintiffs conducted a transaction on Binance’s platform.

With that assumption in mind, we conclude that Section 29(b)’s express

limitations period governs these claims. See 15 U.S.C. § 78cc(b). That provision

states an action must be “brought within one year after the discovery that such

sale or purchase involves such violation.” Id.

“[W]here, as here, the claim asserted is one implied under a statute that also

contains an express cause of action with its own time limitation, a court should

look first to the statute of origin to ascertain the proper limitations period.” Lampf,

Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,

(1991) (superseded

by statute on other grounds). Section 29(b)’s express statute of limitations for

fraud-based claims is therefore the appropriate one because it “focuses on the

analogous relationship, involves the same policy concerns, and provides for a

similar restitutionary remedy.” Kahn v. Kohlberg, Kravis, Roberts & Co. (KKR), 970

, 1038 (2d Cir. 1992). Under this statute of limitations, Plaintiffs’ claims

as to purchases of EOS and TRX made after April 3, 2019 would be timely because

it is impossible to discover that a “sale or purchase involves [a] violation” of the

Exchange Act before that sale or purchase has occurred. See 15 U.S.C. § 78cc(b).

Defendants mistakenly rely on KKR to argue that the limitations period for

Plaintiffs’ recission claims runs from the formation of the allegedly violative

contract. KKR held that the claim at issue there—for recission of an agreement

under the Investment Advisers Act—accrued at the time of contract formation and

that “subsequent payments on a completed sales transaction[] affect the amount

of damages but do not constitute separate wrongs.” 970 F.2d at 1040. But that

does not resolve this case because the contract at issue in KKR contemplated a

long-term relationship in which “a certain amount of [plaintiffs’] capital” was

committed from the get-go “to investments chosen by KKR.” Id. Therefore, that

contract constituted a “completed sales transaction,” which in and of itself violated

the Investment Advisers Act. Id.

35 That is meaningfully different from the situation we face because, by

agreeing to Binance’s Terms of Use, Plaintiffs did not effectuate a “completed sales

transaction.” Though the Terms of Use prevented Plaintiffs from unilaterally

revoking a trade once it was made, they did not commit Plaintiffs to making any

trades at all on Binance’s platform; the Terms simply outlined the governing rules

if Plaintiffs did choose to trade. Plaintiffs were not “committed to pay [an] amount

under the contract,” and indeed they “retained the right” to stop trading on

Binance “at any time.” Id. Therefore, KKR does not require that the statute of

limitations run from the time Plaintiffs agreed to the Terms of Use but before they

committed to or completed any transactions. 7

In any event, even if Defendants were correct that the statute of limitations

expires a year after a “reasonably diligent plaintiff would have discovered the facts

constituting the [alleged] violation,” Appellees’ Br. at 48 (quoting Merck & Co. v.

7 Defendants do not argue that Plaintiffs’ claims accrued when the first transaction took place pursuant to the Terms of Use and that subsequent transactions affect only damages but do not restart the statute of limitations. Instead, Defendants argue that Plaintiffs’ Section 29(b) claim accrued “when the allegedly illegal contract [was] signed” regardless of whether or when transactions were made pursuant to it. Appellees’ Br. at 54. That is the argument we consider and reject.

36 Reynolds,

, 637 (2010)), Plaintiffs’ claims arising from purchases made

during the year before filing are still timely because the “violation” at issue

requires a violative transaction. Just as we concluded with respect to their Section

12(a) claims above, Plaintiffs’ Section 29(b) claims could not have accrued, and

therefore the statute of limitations could not have begun to run, absent a specific

transaction. See MBIA, 637 F.3d at 175–76.

That is because a Section 29(b) claim must be predicated on an underlying

violation of the Exchange Act. See 15 U.S.C. § 78cc(b) (providing a contract is void

where “the performance of [it] involves the violation of” the Exchange Act or

regulations promulgated under its authority); see also Boguslavsky v. Kaplan,

(2d Cir. 1998). And the two alleged violations of the Exchange Act

underlying Plaintiffs’ recission claims both require transactions. Plaintiffs allege

Binance violated Section 5 of the Exchange Act by operating as an unregistered

exchange and Section 15(a)(1) of the Exchange Act by operating as an unregistered

broker or dealer of securities. See 15 U.S.C. § 78e (Section 5, titled “Transactions

on unregistered exchanges”); 15 U.S.C. § 78o(a)(1) (Section 15(a)(1), sub-titled

37 “Registration of all persons utilizing exchange facilities to effect transactions”).

Both of these provisions clearly contemplate a transaction. Further, district courts

in this circuit have long recognized that to make out a violation under Section

29(b), “plaintiffs must show that . . . the contract involved a prohibited

transaction.” Pompano-Windy City Partners, Ltd. v. Bear Stearns & Co.,

(S.D.N.Y. 1992) (internal quotation marks omitted); EMA Fin., LLC v.

Vystar Corp., No. 19-cv-1545,

, at *2 (S.D.N.Y. Mar. 29, 2021)

(same).

As discussed above, the Terms of Use did not commit Plaintiffs to making a

violative transaction. Since Plaintiffs’ Section 29(b) claims require a transaction,

the claims could not have accrued until a transaction occurred. 8 To conclude

8To be clear, we express no view as to whether Plaintiffs successfully stated a claim under Section 29(b) where the contract they are seeking to rescind does not commit the parties to complete a transaction. In the district court, Defendants moved to dismiss Plaintiffs’ Section 29(b) claim arguing that it failed as a matter of law because Plaintiffs did not allege that the Terms of Use committed the parties to a violative transaction. However, the district court did not reach that argument and Defendants have not raised it as an alternative basis for affirmance. Therefore, for the purpose of this opinion, we have assumed that a plaintiff can state a claim for recission of a contract based on violative transactions that are made pursuant to, but not required by, the contract.

38 otherwise would be inconsistent with the caselaw discussed above, which

demarcates the difference—in the securities context at least—between a statute of

repose and a statute of limitations. Plaintiffs could not have known the facts

“required to adequately plead . . . and survive a motion to dismiss” without

knowing what, if any, violative transactions constituted the alleged underlying

violation of the Exchange Act. MBIA,

(citing Merck, 599 U.S. at 648–

49). We therefore conclude that Plaintiffs’ claims under Section 29(b) as to EOS

and TRX purchases made during the year before filing suit are also timely.

III. Dismissal of Absent Class Member Claims

Finally, in addition to dismissing the federal and state claims of the named

Plaintiffs as untimely and impermissibly extraterritorial, the district court

dismissed the claims asserted on behalf of absent class members under the Blue

Sky statutes of states other than California, Florida, Nevada, Puerto Rico, and

Texas, where the named Plaintiffs are from. The district court held there was “an

insufficient nexus between the allegations and those [other] jurisdictions” from

which no named Plaintiffs hailed. Anderson,

, at *4. Dismissal at

this stage on this basis was improper. “[A]s long as the named plaintiffs have

39 standing to sue the named defendants, any concern about whether it is proper for

a class to include out-of-state, nonparty class members with claims subject to

different state laws is a question of predominance under Rule 23(b)(3)” to be

decided after the motion to dismiss stage. Langan v. Johnson & Johnson Consumer

Cos.,

(2d Cir. 2018). We therefore vacate the dismissal of the absent

class member claims.

CONCLUSION

Accordingly, we REVERSE and REMAND for proceedings consistent with

this Opinion as to the claims challenged on appeal.

40