SEC Levelled Up Its Battle with Binance.US

The legal battle between the U.S. Securities and Exchange Commission (SEC) and Binance.US has taken an intensified turn, with the SEC urging a D.C. court to grant access to scrutinize the exchange's asset custody services. This move by the SEC reflects its determination to address what it views as Binance.US's evasive responses to document requests.

The latest development centres on a protective order Binance.US sought in June, designed to counter what the exchange has characterized as the SEC's “fishing expedition.” This matter has been referred to Magistrate Judge Zia Faruqui by Federal Judge Amy Berman Jackson.

The SEC initiated legal action against Binance.US in June, filing a lawsuit targeting Binance.US, its global parent company, Binance Holdings, and its founder, Changpeng “CZ” Zhao. The primary allegation was that they operated an unlicensed securities exchange, raising concerns about investor protection and regulatory compliance. Given the progress in the case thus far, the SEC has presented a compelling case for the necessity of a thorough inspection of Binance.US.

A central point of contention in this legal dispute surrounds Binance's custody platform, formerly known as Binance Custody but rebranded as Ceffu earlier this year. The SEC has expressed suspicions that Ceffu may also be serving Binance.US, potentially enabling the transfer of U.S. customer funds abroad.

The filing from the SEC states, “The SEC seeks an order compelling BAM to produce documents and communications concerning any entity providing it wallet custody software and related services.” This reflects the SEC's frustration with what it perceives as evasive responses and shifting narratives from BAM.

Despite the SEC's allegations, Binance.US has mounted a vigorous defence. On September 12, the exchange's legal team submitted sealed documents in response to the SEC's motion to compel, characterizing many of the regulator's demands as “unreasonable” and “excessively burdensome.”

Meanwhile, data from Amberdata on The Tie Terminal has revealed a substantial decline in trading volume on Binance.US. The volume plummeted to a mere $5.09 million, starkly contrasting the approximately $230 million recorded on September 17, 2022. The exchange reached its lowest point on September 9 when trading activity dipped to just $2.97 million.

Additionally, Binance.US is grappling with a wave of high-level departures, with its Head of Legal, Krishna Juvvadi, and Chief Risk Officer, Sidney Majalya, recently stepping down from their positions. This leadership shake-up closely follows the departure of CEO Brian Shroder earlier this month, all against the backdrop of heightened regulatory scrutiny surrounding the exchange.

In June, Finance Magnates reported the commencement of negotiations between Binance.US and the SEC to prevent a comprehensive freeze of the exchange's assets. These negotiations sought to strike a balance between safeguarding investor funds and allowing the exchange to continue its operations under regulatory oversight.