Binance and Crypto Industry Find Relief As Looming Threat Dissipates

Updated: 20 June 2023

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Binance and the cryptocurrency industry are taking a breath of relief as they witness the removal of the looming threat that had been hanging over them, at least for the time being.

Over the past few weeks, the cryptocurrency community has been eagerly anticipating news about a momentous lawsuit brought forth by the US Securities and Exchange Commission (SEC) on June 5. This lawsuit targets Binance, the largest crypto exchange globally, and its co-founder and CEO, Changpeng Zhao.

SEC Allegations Shake Binance – A Complex Web of Deception and Regulatory Evasion

The SEC has leveled serious allegations against Binance and Zhao, claiming their involvement in a convoluted network of deception, conflicting interests, opacity, and intentional avoidance of legal obligations.

The SEC alleges that Binance mishandled client funds and deceived regulators in an attempt to bypass US regulations, thereby jeopardizing the safety of customer assets. Moreover, the SEC claims that Binance merged client funds with its own and discreetly transferred them to a separate entity, Merit Peak Ltd., controlled by Changpeng Zhao. This entity allegedly received over $20 billion, including customer funds.

According to the SEC, Zhao and Binance have the liberty to divert customer assets at will, essentially accusing them of fraudulent activities.

The primary objective of the Wall Street regulator is to safeguard US customers by persuading the court to acknowledge that Binance lacks the necessary license to operate within the United States. This outcome would result in an injunction that poses significant challenges for Binance’s business operations in the US, where it currently offers trading services.

Additionally, the SEC is seeking unspecified fines against the exchange platform. In the interim, the regulatory body is pursuing a temporary restraining order to freeze Binance’s US assets and repatriate certain foreign assets located in the United States.

It is important to note that Binance itself is not licensed in the US, but it does have a subsidiary called Binance.US, which caters to US-based investors.

Nevertheless, there is a silver lining for Binance and Zhao as they have managed to secure an agreement with the SEC, granting them the opportunity to sustain operations in the United States, albeit on a temporary basis.

Agreement Reached – Temporary Reprieve for Binance in the United States

This agreement entails that customer funds originating from Binance.US will be safeguarded in exclusive digital repositories accessible through US exchanges, a provision outlined in court records and verified by the SEC.

This order ensures that Binance.US customers can withdraw their assets from the platform and that their assets remain protected and within the United States for the duration of the legal proceedings.

Moreover, the agreement specifically prohibits BAM, the entity encompassing Binance’s trading and hedge fund operations in the United States, from transferring any assets or funds to the parent company or Zhao.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the significance of these prohibitions in protecting investor assets, given the alleged ability of Binance and Zhao to control and redirect customer assets.

Changpeng Zhao expressed his satisfaction with the additional protection provided to US customers and, on Twitter, stated that user funds have always been and will continue to be secure across all Binance-related platforms.

Judge Amy Berman Jackson, presiding over the case in a federal court in Washington, validated the agreement between the SEC and Binance. She previously displayed skepticism toward the SEC’s approach of regulating the crypto industry through enforcement actions, a sentiment shared by many crypto participants.

During a court hearing on June 13, Judge Jackson criticized the inefficiency and complexity of the SEC’s strategy and urged the parties to negotiate a framework for safeguarding US funds.

It is worth noting that the SEC has also filed a complaint against Coinbase, the leading cryptocurrency exchange platform in the United States. The regulator alleges that Coinbase has been operating unlawfully since 2019 by providing services without the necessary licenses.

Coinbase has welcomed the complaint as an opportunity to establish clear regulations, a request that it and other crypto firms have been advocating for some time.

As for Binance, it finds itself targeted by another US regulator. In March, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Zhao and Binance for enabling US residents to trade crypto derivatives without proper registration. The CFTC is seeking a lifetime ban on Zhao’s business activities within its jurisdiction and the expulsion of Binance from the United States.