The U.S. SEC and Binance, the world’s biggest cryptocurrency exchange, and Binance.US have reached a court agreement that ensure that U.S. customer assets remain in the U.S. until a sweeping fraud lawsuit filed this month by the regulatory agency is resolved. The agreement, disclosed in court papers filed late on Friday, still requires the approval of the federal judge overseeing the litigation. To make certain that U.S. customer assets do not go offshore, the agreement allows only Binance.US employees access to these assets.
SEC’s allegation
On June 5, the SEC sued Binance, its CEO and founder Changpeng Zhao and Binance.US’s operator, alleging that Binance artificially inflated its trading volumes, diverted customer funds, failed to restrict U.S. customers from its platform and misled investors about its market surveillance controls.
Under a consent order filed Saturday, the defendants in the lawsuit agreed to repatriate all assets held for the benefit of Binance’s U.S. trading customers.
The SEC alleges Binance broke U.S. law by operating as an unregistered securities exchange. It filed similar charges against the world’s other top cryptocurrency exchange, Coinbase, nearly simultaneously.
Binance and its CEO, Changpeng Zhao, face additional charges of diverting customer funds and hiding the fact that it was amalgamating billions of dollars in investor assets and sending them to a third party that was also owned by Zhao. Due to which, the SEC asked to freeze the assets of Binance’s U.S. platform.
The SEC said in a statement released on Saturday that the emergency relief order secured for Binance.US customers will protect their assets and ensure that they can continue to withdraw those assets.
“Given that Changpeng Zhao and Binance have control of the platforms’ customers’ assets and have been able to commingle customer assets or divert customer assets as they please, these prohibitions are essential to protecting investor assets,” Gurbir Grewal, director of the SEC’s enforcement division, said in an earlier statement.
A Binance spokesperson said in a statement, “Although we maintain that the SEC’s request for emergency relief was entirely unwarranted, we are pleased that the disagreement over this request was resolved on mutually acceptable terms. User funds have been and always will be safe and secure on all Binance-affiliated platforms.”
The order signed by Washington, D.C. federal judge Amy Berman Jackson prevents the defendants from spending corporate assets other than for ordinary business expenses. It also requires SEC oversight on any spending and prohibits the defendants from destroying records, the agency said in a statement.
The consent order obliges Binance to create new digital wallets for U.S. customers and transfer assets to them within 2 weeks.
Future of crypto industry
The cryptocurrency industry has been marred by scandals and market meltdowns. According to industry leaders the SEC crackdown signals that U.S. regulators believe there is no room in the traditional financial system for cryptocurrency.
In August 2021, SEC chair Gary Gensler said investors weren’t adequately protected in crypto markets, calling them more like the “Wild West.”
The collapse of crypto prices last year as well as the demise of several notable crypto companies exposed investors to billions of dollars in losses.
