Lawsuit tug-of-war escalates, SEC requests investigation into Binance.US assets

SEC requests investigation into Binance.US assets

The legal battle between Binance and US regulatory agencies is escalating, with the SEC fiercely criticizing Binance.US for being uncooperative in its latest court filings.

Documents submitted to the court on Monday show that the US Securities and Exchange Commission (SEC) has requested the court to investigate Binance.US assets, accusing the company of failing to fully comply with the requirements to submit customer cryptocurrency asset custody and control-related documents and other information.

However, BAM Trading, the entity behind Binance US, claims that it is unable to provide this information.

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In the documents, BAM Trading’s lawyers argue that the SEC’s requests are “overly broad” and have caused too much “inconvenience” for the exchange’s operations. The lawyers wrote, “BAM opposes the SEC’s requests because they are vague, ambiguous, overly broad, lack specificity, or are unduly burdensome.”

Previously, the SEC had requested BAM to provide a series of documents, including records of the company’s handling of customer assets, proof of reserves, and overall financial statements. The regulatory agency claimed that these requests were deliberately ignored by Binance.

What is the relationship between Binance.US and Ceffu?

One of the SEC’s requests relates to the exchange allegedly using a custody service called CEFFU to transfer funds from US customers to overseas. In other words, is Binance.US a customer of the cryptocurrency custody provider Ceffu?

The SEC’s concern is that allowing foreign entities to control the assets of US customers. The agency stated in court documents, “Binance has provided inconsistent representations of material facts, slow-rolled production of a small subset of documents and information, and withheld entire categories of information that may expose unreliable vulnerabilities in its customer asset custody.”

In addition, given the personnel changes at Binance.US, including its president, the SEC emphasized the urgency of expediting discovery of evidence, believing that they may have important information regarding asset custody and availability.

However, BAM’s lawyers responded that these requests are “unduly burdensome” and have forced BAM to incur “significant expenses.” Furthermore, the lawyers argued that some of the requested documents are either not in the possession of the exchange or are not within the “scope” of the SEC’s investigation.

Companies under federal investigation typically refuse requests for information, citing that the information is too broad or burdensome for their employees. And while delays are not always successful, they can cause significant delays in the case.

“Not a Binance entity”

As previously reported, Ceffu was launched in December 2021, initially named Binance Custody, and was rebranded as Ceffu in February 2023.

In filings submitted in August and unsealed in September, the SEC stated that Binance.US’s use of Ceffu may have violated previous agreements aimed at ensuring that only US domestic users can access funds. The agreement prohibits Binance.US from using any other entity associated with Binance or Changpeng Zhao for custody, but it can use third-party providers based in the US.

Binance.US stated in the legal documents filed on September 12th that the SEC’s concerns are “baseless” because wallet providers cannot control customer funds, and Ceffu is just the market name for wallet hosting software developed by Binance Holdings and subsequently authorized by the US department.

In a post on Friday, Ceffu stated that it excludes the United States from its business and “strongly opposes” the SEC’s claim that it provides third-party “wallet hosting software and support services” to Binance.US.

Unclear information

According to information published on the Binance website, Ceffu is referred to as Bifinity UAB, and Bifinity is still listed on the Binance website as registered in Lithuania (allowing it to provide cryptocurrency trading and wallet services) and is listed under various regulatory license entries obtained by Binance.

In November 2022, a document submitted by the SEC stated that Binance CEO Changpeng Zhao is the sole shareholder of Bifinity, and two of the three board members of Bifinity also work for Binance. A document submitted by the SEC in June stated that the company is ultimately owned by Zhao, so the relationship between Ceffu and Binance remains confusing.

Binance.US trading volume evaporating

As the struggle between Binance and US regulatory agencies intensifies, the trading volume of Binance.US is evaporating.

Data from CCData shows that in August, Binance.US’s monthly trading volume decreased by 98% from January 2022, just exceeding $286 million. From early September to September 15th, Binance.US’s trading volume was $115.7 million, so the platform’s trading volume is likely to further decline in September.

According to data from tracking company CoinGecko, as of Monday, Binance.US’s daily trading volume is about $10.5 million. In comparison, the daily trading volume of Coinbase Global Inc., the largest cryptocurrency exchange in the United States, is $948 million.

Most of the decline occurred since March, when Binance was hit by the US Commodity Futures Trading Commission (CFTC) charges. In June, the SEC sued Binance.US, Binance, and Changpeng Zhao, accusing them of a series of violations, including “misrepresenting the trading controls and supervision on the Binance.US platform”.

Under the shadow of regulation, several banking partners have severed ties with Binance.US, and there have been significant changes in the Binance.US management team. Brian Shroder, CEO of Binance.US, resigned last week, when the company also laid off one-third of its staff.

Regarding the dispute over the documents, Judge Zia Faruqui of the District Court for the District of Columbia encouraged Binance.US and the SEC to cooperate during a hearing. Faruqui said, “I need all of you to work to resolve the dispute, forget the past, and try to provide me with some solutions you think can resolve the issues.”

The judge stated that Binance needs to provide more information about its current custody solution: “I think we need more than what we have now,” and added that he is “not very confident that BAM has full control over its assets.”

If the court approves the SEC’s motion for a preliminary injunction at the October hearing, it will result in stricter scrutiny of Binance’s operations and potential violations of securities laws. Binance may have to disclose sensitive information, including documents related to its wallet custody software and its relationship with entities such as Binance Holdings Limited (BHL). Any misconduct discovered during the investigation could lead to penalties, fines, and further legal action.

Author: LianGuaiBitpushNews Mary Liu

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