Changpeng Zhao, Co-founder & CEO, Binance at Centre Stage during the opening night of Web Summit 2022 at the Altice Arena in Lisbon, Portugal. Photo by Stephen McCarthy/Web Summit via Sportsfile
In a new development today, the U.S. Securities and Exchange Commission (SEC) has asked a court to dismiss the objections raised by Binance US regarding the regulator’s recent legal motion.
According to CoinDesk, the SEC claimed that an audit of Binance US revealed difficulties in confirming that the company was fully backed by collateral. Binance US has countered these requests, arguing that the SEC is overstepping its jurisdiction.
JUST IN: 🇺🇸 SEC says Binance US audit found it “very difficult to ensure the company was fully collateralized.”
— Watcher.Guru (@WatcherGuru) September 18, 2023
The Points of Contention Between Binance US and the SEC
Binance US argued that the SEC’s demands are too broad and fall outside the scope of their authority. Specifically, they claimed that the SEC was asking for documents and information that were not within its control and were better suited for other parties.
“BAM objects to the Requests to the extent that they are vague, ambiguous, overbroad, lacking in particularity or oppressive and/or call for information or documents beyond the relevant scope of or disproportionate to the needs of the Consent Order, as well as on the grounds that they are unduly burdensome because they would impose a significant expense and inconvenience on BAM.” Binance US stated in today’s court filing.
Not surprising…but not smart.
This does not end well for #Binance…
But the “real market” for #crypto will be better off in the end.
— Ian Simpson (@ian_simpson80) September 18, 2023
The SEC initially filed a lawsuit against Binance in June. The lawsuit also implicates Binance Holdings, the global parent company of Binance US, and its founder Changpeng “CZ” Zhao. The central allegation is that they operated an unlicensed securities exchange.
SEC’s Accusations Regarding Asset Custody
The SEC is not pulling any punches in its critique of Binance US’s asset management. They are asking the court to disregard Binance US’s objections to their motions for depositions, inspections, and communication from the exchange. The SEC has even gone so far as to call the company’s asset custody “shaky.”
In today’s court filing, the SEC has asked a D.C. court to allow an inspection into Binance US. The regulator asserted that Binance US has not provided all the necessary documents for ongoing legal procedures, reinforcing the SEC’s position that an inspection of Binance US is urgently needed.
Is Binance US Safe?
The SEC has expressed concerns about Ceffu, a service that was rebranded earlier this year from Binance Custody. According to the SEC, Ceffu might be facilitating the transfer of U.S. customer funds out of the country, which would be a breach of a prior agreement.
The SEC stated in its filing: “The SEC seeks an order compelling BAM to produce documents and communications concerning any entity providing it wallet custody software and related services.”
The filing also accuses Binance US of 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.” They label Zhao as “an individual who views himself outside the jurisdiction of any court.”
The SEC is looking to compel Binance US to furnish depositions, communications, and other relevant information for inspection. Failure to comply could lead to penalties for the crypto exchange. Given these recent developments, the topic of crypto regulation is becoming more prominent.
The tensions between the SEC and Binance US reflect broader concerns about the extent of oversight needed in the rapidly growing world of cryptocurrency.
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