Binance, the world’s largest cryptocurrency trading platform, has been rocked by regulatory troubles and legal woes that continue to spiral. The company founded by a former burger flipper turned billionaire is locked in a legal battle against the U.S. Securities and Exchange Commission. With the crypto industry still reeling from the fraud-fueled collapse of FTX, and the crash of 2022, the outcome of this case will have profound implications.
In June, Wall Street’s top regulator filed a lawsuit against Binance.US, the exchange’s international arm Binance Holdings and founder Changpeng Zhao for alleged violation of federal securities law. The SEC alleges that Zhao and Binance operated an unlicensed (read: illegal) securities exchange and misled investors. Of course, Binance denies any wrongdoing.
Currently building its case against BAM Trading Services – the holding company of Binance.US – the regulator had reportedly asked Binance for records pertaining to its business practices – but the SEC’s request has been cold-shouldered by Binance’s U.S. entity, a Monday court filing showed.
“BAM objects to the [SEC’s] requests to the extent that they are vague, ambiguous, overbroad, lacking in particularity or oppressive,” the filing submitted by BAM’s lawyers reads.
While the SEC has requested BAM to hand over a batch of documents – including records of the firm’s handling of customer assets and statements certifying the company’s reserves and financial condition – those requests have allegedly been ignored. The regulator is particularly concerned over Binance apparently using custody platform Ceffu (formerly Binance Custody) to funnel US customers’ funds out of the country. The SEC alleges that in doing so, Binance violated a previous agreement.
Ceffu claims to be a “fully independent third-party technology service provider” and denies being part of Binance. As of now, its alleged links to the crypto exchange remain a gray area.
In the court filing, the SEC also pulled up Binance for providing “inconsistent representations about key facts, slow-rolled small productions of documents and information, and stonewalled on entire categories of information that would likely shed light on its shaky assertions concerning the custody of customer assets.”
The SEC’s Monday court filing says that Zhao “views himself outside the jurisdiction of any court.” The regulator has reportedly asked a D.C. court to order a probe into Binance.US, questioning the exchange’s shaky asset custody. Furthermore, the regulator described the firm’s objections to its motion seeking depositions “half-hearted.”
Binance has been in the hot waters with regulators for a long time. In March, the U.S. Commodity and Futures Trading Commission sued Binance—for willfully offering unregistered crypto derivatives products in the US, in violation of federal law. And the firm’s troubles stretch far beyond US borders. In June, Netherlands slapped a $3 million fine on Binance and asked it to wind up operations. French authorities have also launched a probe into the crypto exchange in connection with money laundering. In Australia, banks turned against the company after it lost its Australian finance license. Adding salt to injury, trading volume on Binance.US has been falling drastically as the firm’s dispute with SEC heats up.