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Binance US vs. SEC: Navigating a Legal Maze

source-logo  cryptonews.net 22 September 2023 12:29, UTC
Calvin James

In the dynamic world of cryptocurrency, Binance US finds itself entangled in an intricate legal web as the Securities and Exchange Commission (SEC) intensifies its scrutiny. While Binance US has consistently emphasized its independence from its parent organization, the SEC remains unwavering in its pursuit of transparency and regulatory compliance.

The United States Securities and Exchange Commission (SEC) said on September 14 that it had accused BInance.US of failing to fully cooperate with the inquiry that it is now conducting. In the course of the inquiry, Binance.US is allegedly purposefully giving information that is either insufficient or ambiguous, as stated by the SEC.

According to the SEC, the only 220 papers that have been produced by BAM, which is the holding company for Binance.US, are part of the discovery process. The majority of the papers, according to the SEC, "consist of unintelligible screenshots and documents without dates or signatures." In addition to providing material that was not clear, the SEC said that BAM had only consented to four witness depositions and had declined to offer any further witnesses.

A Fateful Day in Court

On a fateful Monday, September 18th, the clock struck 3:00 PM ET, marking the commencement of a high-stakes courtroom drama. The SEC, with renewed vigor, urged Binance US to join forces, characterizing their investigative efforts as akin to navigating a perplexing house of mirrors."

In meticulously crafted court documents unveiled on that eventful Monday, Binance US, operating under the name BAM Trading Services Inc, faced the accusation of presenting "half-hearted claims of irrelevance, prejudice, and burden." The SEC, Wall Street's foremost guardian, had earlier in June bombarded Binance, Binance US, and their enigmatic CEO, Changpeng "CZ" Zhao, with a colossal lawsuit, citing alleged transgressions of securities laws.

The Quest for Transparency: SEC's Expedited Discovery

Since that tumultuous legal onslaught, the SEC has relentlessly sought cooperation, pushing for an expedited discovery process to unveil the inner workings of the US-based cryptocurrency exchange. This scrutiny aims to expose the identities wielding authority over the precious funds of customers.

Initially, a nod of agreement emanated from the American firm, but it was swiftly replaced by a resounding refusal, decrying the regulator's perceived "unreasonable demands" for the coveted paperwork.

The SEC's "Lack of Transparency" Allegation

During its exhaustive examination of Binance, the SEC castigated the cryptocurrency exchange for its "lack of transparency." As the courtroom showdown loomed, the SEC vociferously contended that Binance US had "stonewalled on entire categories of information" that could potentially cast a revealing light on its shaky assertions regarding customer asset custody.

Adding a layer of intrigue to the narrative, a document surfaced on that pivotal Monday, indicating a rapid exodus of top executives from BAM over the preceding week. This mass exodus underscored the pressing need for an "expedited discovery into these issues now," including insights from the departing CEO and others privy to critical information regarding asset custody, control, and availability.

As the courtroom drama unfolded, the SEC fervently sought a judicial ruling that would unequivocally dismiss BAM's claims of irrelevance, bias, and burden, deeming them devoid of merit and, in turn, granting their comprehensive Motion to Compel.

Ceffu Custody Platform: A Cryptic Enigma

The spotlight shone on Binance US as the SEC contended that the US branch had doled out only a meager dollop of information regarding the enigmatic "Ceffu" custody platform. The SEC posited that Binance US had enlisted the services of Ceffu to safeguard its assets within the US. However, Binance's consistent refrain was that Binance US operated as a separate and distinct entity.

The CEO's Denial: "Ceffu" and Binance's Isolation

Tensions continued to mount between Binance and the SEC, with regulatory troubles in the United States acting as a perennial source of friction. A thread of evidence hinted at Binance.US customers being unwittingly exposed to international business hazards through a seemingly related custody operation. Binance's indomitable CEO, Changpeng "CZ" Zhao, staunchly refuted any linkage between "Ceffu" cryptocurrency and either Binance Custody or Binance US.

Source: X (Formerly Twitter)

SEC's Focal Point: Deciphering "Ceffu"

Despite this, the SEC continued to be a resolute foe, with its principal bone of disagreement being "Ceffu," which it described as a "newly rebranded Binance Entity" that was entrusted with the management of client assets. A recent consent order emphasized that BAM, the US subsidiary of Binance, was not permitted to hire a "foreign Binance affiliated third-party for wallet custody services." This prohibition was placed on BAM. The authorities were desperate for further information about the safety of user cash on the Binance platform.US.

Intriguingly, court records revealed that BAM had used the wallet custody software developed by Binance Holdings Limited, which was informally called to as "Ceffu." This terminology simply contributed to making things more confusing. The legal team representing BAM argued in their defense that the usage of "Ceffu" was due to a misunderstanding of the vocabulary used to describe the generic software. They said that this misunderstanding led to the use of the name.

Seeking Resolution: The Judge's Wise Counsel

Despite these clarifications, the SEC's skepticism persisted, casting a shadow over BAM's claims regarding 'Ceffu' and Binance's involvement. In the hushed courtroom, the judges presiding over the DC hearing appeared poised to deliver a verdict. The presiding judge offered sage counsel, suggesting that the SEC and BAM should "turn down the temperature" and seek common ground.

This legal saga was not the first skirmish between Binance and the SEC. An earlier clash in June had seen the regulatory agency leveling allegations against the exchange and its enigmatic CEO. The allegations centered around potential breaches of federal securities laws and a convoluted misrepresentation regarding oversight of the Binance.US platform.

Amid this legal maelstrom, it becomes evident that the cryptocurrency world's metamorphosis into mainstream finance has given rise to intricate legal entanglements, with Binance US and the SEC locked in a relentless struggle for clarity and compliance. As the courtroom drama unfolds, the cryptocurrency community and the world at large watch with bated breath, awaiting the denouement of this unfolding saga.