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Binance US Faces SEC's Wrath: Non-Cooperation Allegations Threaten to Unravel Cryptocurrency Empire

Jack Evans
Sep 15, 2023 at 09:09 pm

The saga began when the SEC pointed an accusatory finger at Binance US, accusing it of obstructing an investigation into suspected federal securities law breaches. At the heart of the matter lies Ceffu, a custody service offered by Binance's international arm, which the SEC believes contravenes an earlier agreement designed to safeguard against the international transfer of assets.

During the discovery phase of the investigation—a critical juncture where evidence is gathered—Binance US's holding company, BAM, displayed an unsettling lack of cooperation. The SEC's frustration swelled as BAM submitted a mere 220 documents, many of which lacked dates, signatures, or were indecipherable screenshots. Adding to the disquiet, BAM hesitated to present essential witnesses for deposition, grudgingly agreeing to only four depositions, and only those individuals they deemed suitable.

The SEC lamented, "It has responded to requests for relevant communications with blanket objections and has refused to produce documents kept in the ordinary course of its business, claiming those documents do not exist, only for the SEC to later receive such documents from other sources."

This paucity of disclosure has fueled suspicions that the consent order—a prior legal agreement meant to ensure that only U.S.-based personnel have access to funds—may have been breached.

The focal point of the SEC's unease is the use of Ceffu, a wallet custody software provided by Binance Holdings Ltd, an international entity. This raises concerns about the potential for other factions within Changpeng "CZ" Zhao's sprawling network to exert influence over the assets of U.S. clients.

In a counteroffensive launched on September 12, Binance US dismissed the SEC's concerns about Ceffu as "overblown," dismissing the call for additional documents as a "pointless fishing expedition." The company vehemently argued that providing the Ceffu software does not grant its international branch access or custody over customer funds.

The rift between Binance US and the SEC deepened on June 5 when the SEC initiated a lawsuit, leveling 13 charges against the exchange, including unregistered securities offerings and its staking initiative. The SEC's allegations extend to the domains Binance.com, Binance US, and BAM Trading, claiming they should have registered as clearing agencies, broker-dealers, and exchanges, respectively.

These recent allegations come at a challenging juncture for Binance US, already grappling with an internal crisis marked by a series of high-profile departures, including CEO Brian Shorder, the head of legal, and the chief risk officer, all exiting within a short span.

In the rapidly evolving landscape of cryptocurrency, where fortunes are made and lost overnight, the SEC's relentless pursuit of Binance US casts a long shadow over one of the industry's giants. As the legal battle unfolds, the very foundations of Binance's empire hang in the balance, raising questions about the future of cryptocurrency regulation and the impact on the sprawling network commanded by Changpeng "CZ" Zhao. Only time will tell whether this clash between innovation and regulation will ultimately reshape the cryptocurrency landscape or serve as a cautionary tale for the entire industry.

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