SEC Accuses Binance.US of Deliberately Frustrating Ongoing Discovery Probe

Attorneys representing the United States Securities and Exchange Commission (SEC) have accused the US arm of Binance of deliberately stifling the Commission’s investigation. In a Tuesday joint status report, the SEC claimed that Binance.US is not complying with the agency’s requests for information, including customer asset details and other matters.

However, Binance US and Binance Holdings (the parent company) have denied the SEC’s claims in the court filing. According to the defendants, the exchange has already complied with its obligations. Unfortunately, the SEC disagrees and has asked for further discovery.

Last June, the SEC filed a lawsuit against Binance Holdings Ltd. (BHL), BAM Trading Services (Binance.US), BAM Management US, and founder Changpeng Zhao. The agency accused them of violating US securities laws, alleging that Binance staff outside the US have access to assets owned by Binance.US customers. At the time, the Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said Zhao and the Binance entities “not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits.”

After the June 2023 filing, Judge Amy Berman Jackson gave a consent order that launched an expedited discovery and directed Binance.US to ensure it controls all of its customers’ assets. The SEC is now alleging that Binace.US refuses to provide all the discovery information requested. SEC attorneys are also saying that Binance.US are not cooperating with answering questions. Specifically, the agency believes that Binance Holdings still had some control over Binance.US customer assets.

SEC Insists Binance Holdings Has Control of Binance.US Customer Assets

In the joint status report, the SEC claims that BHL can transfer Binance.US customer assets from deposit wallets to hot wallets when the regular transfers get stuck. Tao Zhang, the Head of Clearing at Binance.US, had testified that he “routinely” messages a BHL group chat when Binance.US has ‘technical issues’ with asset transfers. However, Binance.US disputed the claim, stating that the messages were only for technical assistance. Binance.US insists that BHL has no control over the assets.

Binance.US has added that additional depositions are unnecessary because, after 8 months of discovery, the SEC still has no evidence of misappropriation. The exchange said the agency “has not identified the slightest evidence” that customer assets have been misused in any way.

“The SEC has not provided a modicum of evidence that BHL controls customer assets such that further burdensome discovery on this subject would be merited. Moreover, if the SEC has further questions about BHL’s access with respect to asset transfers, it can ask BHL for clarification at its upcoming deposition of a BHL employee,” Binance.US noted.

On deposition, BHL added that founder and former CEO Changpeng Zhao is opposed to a deposition request. Binance and Zhao are against this deposition because Zhao is no longer a Binance.US director or BHL’s CEO.