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SEC Under Fire as Binance Now Challenges SEC Asserting Lack of Evidence

Published September 12, 2023 12:53 PM
Teuta Franjkovic
Published September 12, 2023 12:53 PM
Key Takeaways
  • Binance claims SEC’s demands are “unduly burdensome.”
  • The SEC’s allegations that investor assets have been improperly shifted are unsupported by any proof.
  • In June, the SEC alleged that Binance’s CZ and Helina Chen secretly moved billions through intermediaries.

Binance.US has responded  to the United States Securities and Exchange Commission’s (SEC) motion to compel and reply, labeling the majority of the SEC’s demands as “unreasonable” and “unduly burdensome.”

Attorneys for BAM Trading Services, which runs the cryptocurrency exchange Binance.US, filed  sealed documents on September 12 in objection to the U.S. SEC’s request for more information from Binance.US.

CCN reached out to Binance for commentary but did not receive a reply at the time of publishing

The defendants claimed  that the SEC’s interrogatories and requests for production go “beyond the scope of the consent order” and are “overly broad, unduly burdensome.”

Attorneys for BAM said that the SEC’s demand for certainty and the requests for depositions of BAM CEO Brian Shroder and chief financial officer Jasmine Lee were “unreasonable.”

Binance Asserts SEC’s Action Lacks Supporting Evidence

According to BAM’s legal team, the SEC’s move “does not identify any evidence” that Shroder and Lee are involved in the day-to-day operations of Binance.US’s custody and transfer of customer assets.

“BAM’s CEO and CFO have no unique knowledge regarding facts relevant to the limited topics identified in the consent order’s expedited discovery provision,” the attorneys claimed .

The lawyers also claimed that Erik Kellogg, BAM’s chief information security officer, and other witnesses with better knowledge of the company’s activities had been offered by BAM.

Legal counsel noted that the discovery requested is out of proportion to the needs envisioned by the consent decree, and the hardship imposed by these depositions considerably outweighs their potential benefit.

Additionally, the lawyers stated  that the SEC still lacked “evidence to support its unsubstantiated allegations,” which implied that consumer assets had been misappropriated in some way.

The SEC’s accusations that form its cross-motion to compel, in the defendants’ opinion, are “misleading and mistaken.”

“Complete disconnect” exists between the SEC’s “overbroad and abusive approach” and the restricted accelerated discovery that the agency agreed to in the consent agreement, according to the attorneys.

Joint Motion on Confidential Docs

The SEC and Binance previously reached an agreement on a protective motion, which mandates that parties file sensitive information under seal, soon before BAM responded.

On September 11, the plaintiff and the defendants filed their joint motion , promising to submit sensitive information as protected materials with access limited to the court, counsel, plaintiffs, and defendants.

According to a filing in the court , both parties seek a protective order from the judge to “govern the treatment and disclosure of certain confidential information during the course of this litigation.”

“The Parties have agreed to a proposed protective order that limits how such information, as well as how other similarly sensitive information, will be protected and disclosed during the course of this litigation.”

The SEC’s motion for filing confidential documents includes a motion to compel and for further remedy. A motion to compel asks the court to uphold a demand from the other side for information in order to comply with discovery demands.

The SEC and Binance.US concur in the most recent filing  that discovery information will be kept private.

Financial data, ownership or management of any organization, private access codes to client or vendor accounts, and confidential business plans are all examples of discovery material.

Binance Submits SEC Objection and Redacted Documents

The court received sealed documents from BAM Management US Holdings and BAM Trading Services (Binance.US).

It contains the proposed order’s wording, arguments against the SEC’s request for more information from Binance.US, and eight exhibits in support of its legal defense.

The subsidiary of Binance also responded  to non-motion filings from the U.S. SEC, alleging that there is no proof of any wrongdoings, including the mixing of money, the control of Binance and CEO CZ over Binance.US, or the diversion of customer assets.

The same sealed exhibits and a statement from Binance.US and Matthew Beville, a US attorney, have been redacted and filed by the defendants. Additionally, Binance.US is still fighting the SEC’s legal claims.

SEC’s Allegations Take New Turn as Court Rejects Asset Freeze Request

According to testimony from an SEC accountant, the SEC claimed  in June that Binance CEO Changpeng ‘CZ’ Zhao and Guangying ‘Helina’ Chen secretly transferred billions of dollars in user cash through middlemen.

At the time, all claims were openly refuted by Binance and CZ. According to BAM’s submission, CZ has acknowledged that it does not possess or control the private keys for any client assets on the exchange, which CZ confirmed.

A US judge rejected the SEC’s request to freeze Binance.US’s assets and instead ordered the two parties to start talks about their future business operations.

BAM questioned the scope of the SEC’s requests in the filing, including those for documents pertaining to the exchange’s wallet and custody software.

The exchange stated  that the SEC “has still not explained why depositions of BAM’s CEO and CFO fall within the scope of the Consent Order.”

The discovery requested is out of proportion to the needs envisioned by the Consent Order, and the hardship imposed by these depositions considerably outweighs their potential benefit.


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