Binance and Crypto Industry Find Temporary Relief as SEC Lawsuit Takes a Step Back


Binance and the cryptocurrency industry can breathe a sigh of relief as the looming threat hanging over them seems to have subsided, at least temporarily.

For weeks, the crypto community has been eagerly awaiting updates on the high-profile lawsuit filed by the US Securities and Exchange Commission (SEC) on June 5 against Binance and its co-founder and CEO, Changpeng Zhao.

The formidable regulatory body has accused the world’s largest cryptocurrency exchange and Zhao of being involved in a “web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” according to the SEC.

The allegations against Binance include mishandling client funds, providing false information to regulators, and attempting to circumvent US laws, thereby jeopardizing client assets. Furthermore, the SEC claims that Binance combined customer funds with its own and covertly transferred them to an external entity named Merit Peak Ltd., controlled by Changpeng Zhao. Allegedly, this entity received over $20 billion, including customer funds.

The SEC alleges that Binance and its CEO have been commingling and diverting customer assets, constituting fraudulent behavior.

Protecting the Interests of US Customers

The SEC is seeking a court ruling that Binance is operating without the required license in the US. Such a ruling would impose an injunction, making it challenging for Binance to continue its operations in the country where it currently offers trading services.

Additionally, the SEC is pursuing unspecified fines against the platform and seeking a temporary restraining order to freeze Binance’s US assets and repatriate certain foreign assets.

While Binance is not licensed in the US, it operates a subsidiary called Binance.US, specifically catering to American investors. Recently, Binance and Zhao reached an agreement with the SEC that allows the platform to continue operating in the United States for the time being. The agreement also ensures that funds from Binance.US clients will be held in special digital repositories accessible on the US Exchange, as stated in court documents and the SEC’s statement.

This order provides reassurance to Binance.US customers, guaranteeing their ability to withdraw their assets from the platform and ensuring that their assets remain protected within the United States throughout the litigation process.

Furthermore, Binance’s US-based entity, BAM, which encompasses its trading and hedge fund operations, is expressly prohibited from transferring any assets, funds, or control over such assets to the parent company or Zhao.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of these restrictions in safeguarding investor assets, stating, “Given that Changpeng Zhao and Binance have control of the platforms’ customers’ assets and have been able to commingle or divert them as alleged, these prohibitions are essential to protecting investor assets.”

A Judge’s Warning

Zhao expressed his satisfaction with the additional protection afforded to US customers, although he maintained that the SEC’s emergency relief request was unwarranted. In a tweet on June 17, the crypto billionaire stated, “User funds have been and always will be safe and secure on all Binance-affiliated platforms.”

Judge Amy Berman Jackson, presiding over the case in the federal court in Washington, validated the agreement between the SEC and Binance. She previously expressed skepticism about the SEC’s approach of regulating the crypto industry through enforcement actions, a sentiment echoed by crypto players critical of the regulator. During a court hearing on June 13, Judge Jackson referred to this approach as “inefficient and cumbersome,” urging the involved parties to negotiate terms to protect US funds.

In another development, the SEC has filed a separate complaint against Coinbase, the leading cryptocurrency exchange platform in the United States. The regulator alleges that Coinbase has been operating illegally by providing services for which it is not licensed since 2019.

Coinbase has officially welcomed the complaint, asserting that it will pave the way for clear regulation—an outcome that the company, alongside other crypto firms, has been advocating for a long time.

As for Binance, it faces scrutiny from yet another US regulator. In March, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Zhao and Binance for allegedly allowing US residents to engage in buying and selling cryptocurrency derivatives while the firm remained unregistered.

The CFTC seeks to permanently ban Zhao from conducting business within its jurisdiction and to remove Binance from operating in the US.

It remains to be seen how these legal battles will unfold and how they will impact the broader crypto industry. Stakeholders are closely watching as regulators and crypto platforms navigate the complex landscape of cryptocurrency regulation in the United States.

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