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SEC Demands Court Intervenes in Binance Case 

Last Updated March 6, 2024 2:54 PM
Shraddha Sharma
Last Updated March 6, 2024 2:54 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • The SEC accuses Binance.US of non-compliance with information requests.
  • The US regulator has requested judicial intervention amid an ongoing legal confrontation with Binance.
  • Binance.US faced operational disruptions following the lawsuit, a new filing reveals.

The United States Securities and Exchange Commission (SEC) has petitioned a court to step in regarding Binance’s alleged failure to adequately respond to information requests. In a recent court filing in the Washington D.C. district court, the SEC called for court intervention. Meanwhile, the lawsuit has taken a toll on the Binance business, a new report revealed.

What is the SEC Asking?

The SEC filing  with the District Court for the District of Columbia outlines a dispute over the accessibility and transparency of information regarding how Binance managed customer assets.

Notably, during a supposed inspection of the exchange systems and procedures, BAM Trading, the company behind Binance.US, was accused of limiting the scope of the review. SEC alleges that they did not provide comprehensive answers to the inquiries. The plaintiff alleges a refusal to detail the interaction between its systems and the control mechanisms over customer assets. The agency raised red flags about its compliance with previous consent orders.

The filing noted, “For example, BAM refused to answer questions regarding how its PNK system interacts with the wallet software and private keys, and BAM refused to demonstrate its process for “whitelisting” wallets to enable transfers of crypto assets.”

In addition, the SEC claims that BAM might not have total control over the technology that manages customers’ digital currencies. Instead, some of this control might still be with Binance’s main company or other parts of its business. While BAM said they had taken steps to have more control over their technology, the SEC appears unconvinced.

The agency maintains its interest in obtaining information from Changpeng ‘CZ’ Zhao, the former CEO of Binance, due to his past associations with the parent company, even though he has stepped down from his position.

The filing added: “The SEC disagrees that Zhao’s change in position obviates the need for his deposition in light of Zhao’s continued financial relationship with both BAM and BHL.”

Operational Fallout for Binance

Following the SEC’s lawsuit, deposition  documents have revealed that Binance.US faced operational and financial distress. The exchange’s trading volumes and business metrics deteriorated, leading to the layoffs of over 200 employees. The situation also affected revenue, which reportedly fell by 75%.

Binance.US COO Christopher Blodgett said: “Our trading volumes and business more generally have imploded.”

The legal battle between the SEC and Binance takes place against a backdrop of intensified crypto scrutiny. While the SEC’s allegations against Binance include serious concerns over customer fund management and compliance with securities law, it is reportedly leveraging the Coinbase case against Binance.

This means the SEC will reference another case related to insider trading as the supplemental authority in its argument against Binance.

Will the Court Intervene?

The SEC’s call for court intervention for additional information will potentially set precedents for how cryptocurrency businesses are expected to operate and comply with US securities laws.

The outcome of this legal encounter may also influence future regulatory actions. Therefore, there is a possibility that the court could intervene in the case for more transparency.

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