The SEC filed a joint motion on March 5 to request further action against Binance.US due to alleged failures to comply with regulatory requests for information regarding customer assets. The SEC claims that Binance.US’s inspections were inadequate, their counsel refused to answer crucial questions, and the firm made changes to its operations without providing updates. On the other hand, Binance.US argues in the joint filing that it has fully complied with all of the regulator’s information requests and stated that the SEC’s actions have caused the firm “material damage.”
SEC’s Main Concerns
The SEC originally accused Binance and Binance.US of securities violations in June 2023. Subsequently, the SEC obtained a temporary restraining order against Binance.US, mandating the exchange company to provide data and adhere to orders. The key concern of the SEC revolves around whether entities outside of the US, particularly Binance Holdings Limited, control certain Binance.US crypto wallets. The regulator is worried about a lack of complete autonomy in Binance.US’s control over customer assets, especially with regards to the potential access of Binance Holdings employees to these funds through Amazon Web Services servers. These servers facilitate Binance.US’s wallet software, which raises doubts about the firm’s exclusive control over private keys and, consequently, customer assets.
In addition to these concerns, the SEC also questioned whether Binance.US personnel are situated outside the US and receive compensation from global Binance entities. Furthermore, the watchdog wants to ascertain whether Binance.US effectively monitored and prevented prohibited transfers to international entities associated with Binance. The SEC has asked the court to engage in further discovery, including a targeted deposition that would necessitate Binance.US to appoint a representative to provide binding testimony. The agency is also open to exploring other more limited discovery methods.
Binance.US has requested the court to terminate the expedited discovery process, contending that it has already complied with the demands. The firm alleged that the SEC’s actions resulted in material damage, leading to the loss of banking partners and active users. These challenges culminated in the decision to lay off employees. Binance.US COO Christopher Blodgett testified that the company had to cut over 200 staff members, which accounts for two-thirds of the company, since June 2023 as users withdrew $1 billion in assets from the exchange. Blodgett noted that Binance.US’s revenues plummeted by more than 75% following the SEC’s actions, amidst increasing operating and legal costs.