With every passing day, the ongoing case of the United States Securities and Exchange Commission (SEC) and Binance is taking new turns. Recently, the SEC is seeking “alternative service” from the U.S. district court in Washington, D.C. to issue a legal summons to Changpeng Zhao, the CEO of cryptocurrency exchange Binance.
In a document filed with the district court dated June 7, the SEC requested the judicial body for an alternative service to bring CZ to testify. The regulator explained in its document that the service (which requires the presence and signature of the person being served) might prove difficult in this case considering the speculations regarding CZ’s area of residence. It stated:
Binance and Zhao are not the typical foreign entity and individual, as they are widely known for disagreeing with the premise of a headquarters or domicile, let alone identifying one, and Zhao is famously protective of revealing his whereabouts.
Further, SEC asked the court to order Zhao and Binance to promptly provide a “sworn accounting,” essentially a legal disclosure of financial information. As per the complaint, the SEC has been unable to discern the full extent of the defendants’ assets, the exact whereabouts of investor money, or the status or location of other assets that may be used to satisfy a money judgment against the defendants.
As of writing, the location of Zhao, who is a Chinese-born Canadian citizen, remains unknown. However, as per Binance spokesperson Dewi Mustajab, as of March 28, 2023, the CEO splits his time between Dubai and France and will reportedly home in Dubai in 2021.
While Binance CEO is rumored to be in Dubai, there is no particular known base of operations. Hence, as an alternative the SEC wants the permission to serve his lawyers on his behalf.
On June 5th, the SEC filed 13 charges against the exchange, including unregistered offers and sales of the stablecoins – BNB and BUSD, its services namely the Simple Earn and BNB vault products, and its staking program. Additionally, the regulator claims in its suit that Binance failed to register its online platform as an exchange or a broker-dealer clearing agency.
It added that the funds from Binance and Binance.US were commingled into an account controlled by CZ-associated Merit Peak Limited. While CZ denied those charges, the SEC demanded permanent suspension of Binance and CZ from further activities, disgorgement of ill-gotten gains with interest, and financial penalties.
A day after the lawsuit, the regulator filed an emergency motion to freeze assets of Binance.US as earliest as possible. At first Binance called the motion unwarranted and an act to enjoy an upper hand during the lawsuit, but later announced delisting on several BTC and BUSD advanced trading pairs. Not just that, the exchange has also decided to halt USD services by June 13.
The US court had hit the exchange and CEO with a summons earlier this week requiring them to respond within 21 days. However, the CEO would likely not be legally required to make a physical appearance as he is not a U.S. citizen. Nonetheless, the courts typically require some form of service to occur even if the defendant isn’t required to appear.
Additionally, the case took a severe turn when some of the internal chats between the firm’s executives were leaked, casting serious doubts on the exchange’s legitimacy. While the regulator has also been largely criticized for its enforcement oriented approach, recent events add trouble on company’s image.