(Reuters) - The U.S. Supreme Court turned away on Monday a bid by Binance and founder Changpeng Zhao to avoid a lawsuit by investors who accused the world's largest cryptocurrency exchange of illegally selling unregistered tokens that lost much of their value.

The justices declined to hear an appeal by Binance and Zhao of a lower court's decision to let the proposed class action proceed. The 2nd U.S. Circuit Court of Appeals in Manhattan ruled that domestic securities laws could apply despite Binance not being a U.S. company because token purchases became irrevocable in the United States once investors paid for them.

The 2nd Circuit in its March 2024 ruling noted Binance's use of domestic servers from Amazon in concluding that the lawsuit could continue.

Binance, founded in China, has argued that it should not be governed by U.S. securities laws. Chief Executive Richard Teng told Reuters in December that Binance has yet to decide where it should be headquartered, years after the exchange had indicated a decision was imminent.

Investors who bought ELF, EOS, FUN, ICX, OMG, QSP and TRX tokens through Binance starting in 2017 accused the exchange of failing to warn about the "significant risks" of the tokens, and sought in the class action to recoup what they paid.

Binance had argued that U.S. securities laws did not apply because its exchange was located outside the country. It cited a 2010 Supreme Court decision, Morrison v National Australia Bank, that limited the extraterritorial reach of those laws.

In its Supreme Court appeal, Binance said the 2nd Circuit misapplied the Morrison decision by allowing liability at multiple stages of securities transactions and in multiple countries.

The exchange said this essentially revived a standard that the Supreme Court has rejected in which domestic securities laws could apply if conduct underlying a transaction took place or the transaction had effects in the United States.

Binance said its appeal also addressed "a question of global significance for financial markets: whether (and if so, when) U.S. securities laws extend to foreign trading platforms such as Binance.com."

The case is unrelated to Binance's Nov. 2023 guilty plea and more than $4.3 billion penalty for violating federal anti-money laundering and sanctions laws. Zhao was sentenced to four months in prison in a related case, and was released in September.