Binance.US Says SEC’s Temporary Restraining Order Would Destroy the Company

Binance logo in an illustration taken on March 31, 2023. (Dado Ruvic/Reuters/Illustration)

Binance said that the Securities and Exchange Commission’s (SEC) move to freeze the assets of its American affiliate, Binance.US, would effectively destroy the crypto exchange.

The SEC filed a temporary restraining order on June 12,to freeze Binance.US’s funds until it was able to prove that no one at the firm, including its CEO, Changpeng “CZ” Zhao, could access them.

Binance and Zhao were hit by the SEC with 13 charges on June 5 for alleged violations of U.S. securities rules, which they have totally denied.

The first hearing for the case was held on June 13 at the U.S. district court for the District of Washington, D.C.

SEC Presses Ahead to Shut Down Binance

The federal regulator accused Binance, Binance.US, and Zhao for allegedly running the companies as an unregistered securities exchange, broker, and clearinghouse.

The defendants were also accused of allowing American customers to buy and trade certain cryptocurrencies that the SEC recently defined as unregistered securities in a crackdown on private currency.

The SEC said that Binance and its CEO diverted millions from customer accounts held by from Binance.US to entities owned by Zhao, like Bank Merit Peak and Sigma Chain.

SEC chairman Gary Gensler accused the defendants of attempting to evade U.S. securities laws “by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms.”

“Through 13 charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” Gensler said in a press release.

According to the SEC complaint, Binance and Zhao allegedly “secretly controlled” Binance’s American platform operations, despite publicly stating that it did not serve U.S. investors.

Binance immediately denied the SEC’s allegation that it was a clearing agency or an illicit exchange.

The firm also refuted accusations that it directly operated Binance.US and that it merely acted as a service provider for the platform.

The filing quoted Gensler’s previous admission that there was no regulatory framework for cryptocurrencies before Congress when the charges were filed against Binance in May.

Binance Requests Limited Control of Assets to Continue Operations

In a motion filed by Binance.US, the company called the SEC’s moves “draconian and unduly burdensome” and said “if the court does address the merits of the SEC’s motion, it should deny that motion.”

“The SEC seeks unnecessary and unjustified relief. Far from requesting relief that is ‘carefully calibrated’ to ’maintain[] the status quo' ... the SEC’s proposed remedies would effectively end BAM’s business,” said the filing.

BAM Trading Services is the name of the entity behind Binance.US, which is owned by BAM Management US Holdings, and in turn controlled by Zhao, said the SEC.

Attorneys for the embattled crypto exchange wrote that freezing its funds would “primarily harm BAM’s customers, effectively put BAM out of business, and prevent BAM from defending itself in this litigation.”

George Canellos, a former Department of Justice prosecutor for the Southern District of New York, and one-time SEC division of enforcement co-director, was recently added to the legal team.

They said freeze would likely deter banks from doing business with Binance, which is already having trouble finding financial institutions willing to partner with them.

The SEC’s actions would prevent the crypto exchange from paying its employees, vendors, and other parties, or even allow it to maintain its systems, said the filing.

The defendants filed a joint memorandum arguing that “there is no risk to [Binance.US] customer assets,” and said there was no need for an emergency action.

Binance.US later filed a separate request that would allow the company to continue paying employees and vendors, but prevent it from paying any other entities controlled by Zhao.

Attorneys representing the firm asked the court for permission to allow Binance.US to move all of its assets to BAM Trading’s “possession, custody, and control.”

This would make sure that its current employees, except for Zhao, would still have access to its accounts, so that no one from the crypto exchange could access its funds during the trial.

Binance.US also promised to transfer all user funds to new digital wallets within two weeks, but the proposal stops far short of the SEC’s demand for a full asset freeze.

Crypto Exchange Said That Regulators Failed to Warn of Violations

The firm said in its filing that the SEC could not identify “a single security trading on BAM’s platform.”

“The SEC suggests that it is a foregone conclusion that cryptocurrency is a security, but that is not the case. That numerous cryptocurrency exchanges, including BAM, have operated in the United States for years without interference by the SEC belies the claim that they are clearly covered by the securities laws,” said Binance.

Binance.US further claimed that the SEC had failed to prove that it sold its BNB stable coins as an investment contract and that they had been fully cooperating with the agency prior to last week’s lawsuit to remain compliant with federal securities regulations.

“Until very recently and despite being provided with substantial information about BAM’s custody of assets, the SEC did not express to BAM any of the concerns animating its motion,” said Binance’s filing.

“This was unsurprising, given that there is no evidence that BAM customer assets have been misused or mishandled. Over the past several weeks, the SEC inexplicably began to focus on the custody of BAM’s assets, and BAM continued to cooperate in good faith, working around the clock to address the SEC’s questions.”

The defendants also said that the SEC had long allowed them to operate for years in the United States without filing any charges or raising any concerns.

They said that the first time they had heard of any serious warnings was on May 30, a week before the charges were filed.

“Why did the SEC let these platforms grow to their current size if it was always illegal?” the defendants asked.

“And how is it that the sudden ‘emergency’ happens to coincide with the SEC’s assault on the crypto industry as a whole, with Binance and Coinbase being sued on back-to-back days?”

The filing claimed that the main charges against the defendants were for registration violations and for personal control of accounts and nothing to do with the misuse of funds.