Binance Sold ALGO as an Unregistered Security in the U.S.

FACTS

VIII. THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND SOLD AS SECURITIES.

H. ALGO

465. “ALGO” is the native token of the Algorand blockchain and has a maximum supply of 10 billion, which were minted at the launch of the Algorand network. Algorand is a blockchain protocol founded by Silvio Micali. The Algorand blockchain uses a consensus algorithm it calls “pure proof-of-stake,” in which each user’s ability to influence the choice of a new block is proportional to its stake (number of tokens) in the system. Because ALGO is the native token of the Algorand blockchain, those utilizing the Algorand blockchain need to hold (and potentially stake) certain amounts of ALGO.

466. The Algorand Foundation Ltd. (the “Algorand Foundation”) conducted an initial ALGO token sale on or about June 19, 2019, selling 25 million tokens at $2.40 per ALGO, raising approximately $60 million. In advance of the token sale, the Algorand Foundation promoted the token sale on Twitter and included a link to its website.

467. The Algorand Foundation promoted the June 19, 2019 token sale in part with a refund policy that allowed ALGO investors to return the ALGO to the Algorand Foundation one year later at 90% of the original purchase price. The Algorand Foundation explained the economic rationale behind the refund policy by noting its own belief in and commitment to the value of ALGO: “We believe in the underlying value of the Algorand blockchain, the Algo, and the potential of the borderless economy. Our goal is to invest in the growth, sustainability and performance of that economy.”

468. In other words, in promoting the ALGO token sale, the Algorand Foundation tied the potential growth of the Algorand blockchain to potential demand for the ALGO token itself, and to its own commitment to preserving a price floor for ALGO.

469. In or around August 2019, the Algorand Foundation publicly offered ALGO investors an early refund opportunity, and ALGO investors returned a total of approximately 20 million ALGO tokens to the Algorand Foundation in exchange for a refund that was 85% of the original purchase price. In or around June 2020, ALGO investors who did not refund their ALGO tokens in August 2019 were publicly offered a second refund window. ALGO investors returned a total of approximately 5 million ALGO tokens for a refund that was 90% of the original purchase price.

470. Through its rewards programs and incentive structures, the Algorand Foundation continued distributing tokens after the June 2019 token sale. As of September 2022, approximately 6.9 billion ALGO were in circulation.

471. Today, two entities are responsible for Algorand: (1) the Algorand Foundation, an organization purportedly focused on Algorand “protocol governance, token dynamics and supporting grassroots, open-source development on the Algorand ecosystem,” which was incorporated in Singapore; and (2) Algorand, Inc., a company purportedly focused on “layer-1 development of the Algorand Protocol and enabling Enterprise adoption of Algorand blockchain technology.”

472. The Algorand Foundation and Algorand, Inc. purportedly collaborate on projects and initiatives for the Algorand community.

473. Shortly before the June 19, 2019 ALGO token sale, Steven Kokinos, the CEO of Algorand, Inc., posted a publicly available article stating: “(a) We will be holding our founder’s tokens for the long term and will not be selling them. (b) We will use our founder’s tokens to participate in consensus and assist in securing the network, though we will never represent more than 49% of the voting. (c) We will use our founder’s tokens to support the ecosystem and encourage development.”

474. The Algorand Foundation purportedly owns 500 million ALGO tokens and the participation and governance rewards associated with those tokens. Also, members of the Algorand Foundation’s board of directors and its advisory committees receive ALGO as compensation.

475. In addition to the tokens it owns, as of September 2022, the Algorand Foundation also controls over 3 billion ALGO tokens in wallets publicly identified as for “Community & Governance Rewards,” “Ecosystem Support,” and “Foundation Endowment,” signaling to the public that the Algorand Foundation would use the ALGO tokens to support the ALGO economy or ecosystem as well as to reward itself and participants in this ecosystem.

476. ALGO has been available for buying, selling, and trading on the Binance.com Platform since June 2019, and the Binance.US Platform since October 2019.

477. The information Algorand, Inc. and the Algorand Foundation publicly disseminated has led ALGO holders, including those who have purchased ALGO since June 2019, reasonably to view ALGO as an investment in and to expect to profit from Algorand, Inc.’s and the Algorand Foundation’s efforts to grow the Algorand protocol, which, in turn, would increase demand for and value of ALGO.

478. In public statements on Twitter, as well as on their respective websites, Algorand, Inc. and the Algorand Foundation promoted the Algorand protocol.

479. Until approximately May 14, 2022, the Algorand Foundation told the investing public that ALGO investors could receive participation rewards (purportedly a form of staking by delegation) by “participation in the Algorand ecosystem via holding Algo in an online wallet.”

480. As of approximately May 14, 2022, the Algorand Foundation publicly stated that it would replace the participation rewards that ALGO holders were entitled to receive with socalled governance rewards. The Algorand Foundation described “Governance” as a way for investors to make investment returns on their ALGO purchases—stating it is “a decentralized program which allows Algo holders to vote on the future of Algorand” and “the best way to earn rewards for holding Algo, with APY% of 10.02% - 14.05% seen in previous periods.”

481. The Algorand, Inc. and Algorand Foundation websites tout their teams’ technical experience and expertise in the areas of cryptography and business development. For example, Algorand, Inc.’s website states: “Blending technical mastery and professional stability, the Algorand team consists of internationally recognized researchers, mathematicians, cryptographers, and economists along with proven business leaders from global technology companies.”

482. In a March 2022 report, the Algorand Foundation publicly stated that it had started a new program to incentivize the “growth of the ecosystem, which is the fundamental need of a maturing blockchain. The program includes a series of loans to help the growth of our DeFi network and to expand the institutional investments in the ecosystem . . . The Algorand Ecosystem team facilitates the development and growth of the ecosystem and developer pipeline including undiluted funding, technical onboarding and standardization conventions for ASAs, Wallets and AVM.”

483. Algorand, Inc. and the Algorand Foundation have also taken steps to incentivize third parties to participate in and attract users to the ALGO protocol. For example, in or around February 2022, the Algorand Foundation announced a $10 million incentive for developers that can make the Algorand blockchain compatible with applications built on the Ethereum blockchain.

484. Also in or around February 2022, the Algorand Foundation announced a section of its website called AlgoHub, “a virtual community designed to grow the pipeline of #Algorand developers.”

485. These statements have led ALGO investors, including those who purchased ALGO after it became available for trading on the Binance Platforms, to reasonably expect that the demand for ALGO would likely increase based on Algorand, Inc.’s and Algorand Foundation’s efforts to increase demand for the Algorand technology, thereby resulting in a price increase for ALGO.