The SEC filed a joint motion on March 5 asking the court to take further action against Binance.US for allegedly failing to comply with regulators’ requests for information about customer assets.
According to the filing, the SEC alleges that Binance.US inspections have been inadequate, that the company’s lawyers have refused to answer critical questions, and that the company has changed aspects of its operations without providing updates, among other things.
Meanwhile, Binance.US claims in the joint filing that it has fully complied with all information requests from the regulator and argued that the SEC’s actions have caused “material harm” to the company.
The SEC first alleged that Binance and Binance.US committed securities law violations in June 2023. Shortly afterwards, the SEC obtained a temporary restraining order against Binance.US, requiring the exchange to provide data and follow orders.
SEC concerns
The SEC is particularly concerned about whether entities outside the US – including Binance Holdings Limited – control certain Binance.US crypto wallets.
The regulator’s concerns include a potential lack of full autonomy in Binance.US’ control over client assets – particularly regarding Binance Holdings employees’ potential access to these funds via Amazon Web Services servers.
These servers power Binance.US’ wallet software, raising questions about the company’s exclusive control over private keys and therefore customers’ assets.
The SEC has also raised concerns about whether Binance.US staff exists outside the US and is compensated by global Binance entities. Additionally, the watchdog wants to confirm whether Binance.US has properly monitored and blocked prohibited transfers to international entities affiliated with Binance.
The SEC has asked the court to make additional discovery, including a directed deposition, which would require Binance.US to select a representative to provide binding testimony. The agency also said it is open to other, more limited discovery methods.
Material damage
According to the filing, Binance.US simultaneously asked the court to terminate the expedited discovery process on the grounds that it has fully complied with its demands.
The company has also argued that the SEC’s actions resulted in material harm as it resulted in the loss of banking partners and active users. The company added that these issues culminated in the decision to lay off employees.
Binance.US COO Christopher Blodgett’s testimony revealed that the company has laid off more than 200 employees — or two-thirds of the company — since June 2023 as users withdraw $1 billion in assets from the exchange.
Blodgett wrote that following the SEC’s actions, Binance.US’s revenues “imploded” and fell by more than 75% against the backdrop of rising operational and legal costs.