SEC Investigates Binance.US for Alleged Asset Custody Violations

Key Takeaways

  • The SEC accuses Binance.US of inadequate cooperation in an investigation on asset custody.
  • Binance.US denies the SEC's claims and asserts its compliance with regulatory requests.
  • Legal challenges compound for Binance with a DOJ settlement and ongoing SEC lawsuit.

The U.S. Securities and Exchange Commission (SEC) is intensifying its scrutiny of Binance.US, accusing the exchange of failing to comply with inquiries regarding customer assets and key aspects of an ongoing investigation.

In a joint status report submitted to a Washington, D.C. District Court on March 5, the SEC expressed dissatisfaction with BAM Trading Services, operating as Binance.US. The regulator cited inadequate responses to queries concerning the custody of customer assets. SEC now seeks the court’s intervention to hasten the discovery process.

The SEC alleges that Binance.US has been hesitant or unable to fulfill basic discovery obligations, such as providing necessary attachments and metadata related to requested documents.

The investigation focuses on the question of whether employees from Binance’s non-U.S. arm had access to Binance.US customer assets, to which the latest reportedly failed to adequately respond.

However, Binance.US refutes the SEC’s claims, asserting compliance with information requests, describing them as overly broad. The company denies allegations regarding customer assets. It states it has exceeded regulatory obligations by submitting thousands of documents related to asset custody practices, along with sworn declarations and monthly reports.

Binance.US keeps emphasizing its cooperation in numerous inspections involving shared custody devices holding customer assets.

Seeking a swift resolution, Binance.US urges the court to conclude the expedited discovery process, emphasizing full compliance with SEC demands. The company voices concerns over the SEC’s actions. It cites repercussions such as the loss of banking partners and a decline in active users, prompting significant operational changes, including the termination of over 200 employees since June 2023.

Christopher Blodgett, Binance.US COO, attributes these layoffs to reduced revenue and escalating operational and legal expenses following the SEC intervention.

This dispute adds to broader legal challenges initiated by the SEC in June 2023 against Binance, Binance.US, and their founder, Changpeng Zhao. The lawsuit accuses them of selling unregistered securities and commingling customer assets with those of a separate entity controlled by Zhao.

In a related matter, Binance settled with the U.S. Department of Justice on November 21, agreeing to a $4.3 billion payment for violations of U.S. anti-money laundering and terrorism financing laws. Zhao pleaded guilty to money laundering charges, awaiting sentencing on April 3, facing a potential 18-month prison term.

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