SEC vs. Binance: Judge Maintains Status Quo in Document Dispute

Police & Regulations
Sep 19, 2023 at 01:05 pm

During a hearing held on Monday, U.S. Magistrate Judge Zia Faruqui opted not to issue directives requiring Binance.US executives to be more accessible for depositions, nor did he suggest the SEC reduce its document requests. Instead, Judge Faruqui encouraged both parties to collaborate on the discovery process. He recommended that the SEC refine their request for information but allowed them to depose specific shareholders to ascertain the safety of Binance.US's funds. The judge underscored the significance of Binance providing further information about its affiliation with Ceffu, its service provider.

He articulated, "I'm refraining from giving orders directly from the bench at this moment about whether they should produce or not produce specific things. Let's continue working together to resolve this. My primary goal is to maintain progress."

At the crux of the SEC's argument is a concern that Ceffu maintains a much closer association with Binance Holdings Limited, the global entity, than what is permitted under a mutually established order. This order mandates that both Binance.US and its parent company BAM Trading store all U.S. customer funds in wallets accessible exclusively by U.S. personnel.

Matthew Martens, an attorney from Wilmer Hale representing Binance.US, contended that the SEC's document requests were so extensive that complying with them would be unfeasible. He remarked, "Engaging in a detailed investigation of how that software functions is not pertinent to the matter at hand."

The judge emphasized that Binance needs to provide more comprehensive information about its current custody solution, stating, "I believe we need more detailed information than what is currently available." He added a side note, expressing some reservations about BAM's complete control over their assets.

SEC attorney Jennifer Farer argued that part of the challenge stems from "the uncertainty of what we're not aware of," underscoring the regulator's need for substantial information concerning Binance.US's new wallet arrangement.

Martens later remarked during the hearing, "This is impractical. It's not a matter of engaging in a serious legal process."

In June, the SEC initiated a lawsuit against Binance and its founder Changpeng "CZ" Zhao, alleging their operation of an unlicensed securities exchange. Since then, the regulator has been working to ensure that assets from U.S. customers remain within the U.S.

The judge has stipulated an October 10 deadline for a joint status report and has scheduled a subsequent hearing for October 12.

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