Judge Refuses To Make Ruling In SEC-Binance Document Dispute

Table of Contents

• Judge Orders Binance US And SEC To Work Together 
• The SEC’s Case Against Binance.US 
• Judge Makes Stance Clear 

A US judge has refused to order Binance.US to make its executives available for dispositions or for the United States Securities and Exchange Commission (SEC) to back down from demanding more documents. 

Judge Orders Binance US And SEC To Work Together 

Instead of delivering a ruling, Magistrate Judge Zia Faruqui urged Binance and the Securities and Exchange Commission (SEC) to work together on the various discovery requests. The judge asked the SEC to narrow its request for information but allowed it to depose certain shard holders and establish whether Binance.US’s funds are safe. The judge added that Binance.US, the US branch of Binance, should share more information with the SEC about its relationship with Ceffu, a custody platform and its service provider. 

“I’m not going to order from the bench right now that they produce or not produce things. Let’s continue to try to work this out. I just want to keep things moving.”

Binance.US has been in the spotlight since the Securities and Exchange Commission launched a lawsuit against the platform. It has also seen its trading volume register a significant dip while members of its C-suite have also moved on. 

The SEC’s Case Against Binance.US 

The crux of the Securities and Exchange Commission’s argument revolves around concerns about Ceffu. The SEC alleges that the custodian is far more closely related to Binance Global Holdings Limited than what is permitted by a mutually agreed-upon order. The order requires Binance.US and its parent entity, BAM Trading, to hold all US customer funds in wallets that are only accessible by US personnel. 

The Securities and Exchange Commission also claimed that this was used to move US customer funds out of the country, in violation of the order between the firm and the commission. According to its filing, the SEC stated it wishes to inspect the firms’ documents and communications with its wallet custody service providers. 

“But even this limited discovery has revealed that BAM still cannot credibly explain its crypto asset wallet custody arrangements. And BAM has continued to provide the SEC with conflicting information concerning Defendant Binance Holdings Limited’s (“BHL” or “Binance”) role and that of a Binance-related entity called “Ceffu” in the custodying of Customer Assets.”

However, an attorney with Wilmer Hale, the firm representing Binance.US, Matthew Martens, said that the SEC’s request for documents was so broad that it was impossible to produce them. 

“BAM objects to the [SEC’s] requests to the extent that they are vague, ambiguous, overbroad, lacking in particularity or oppressive. Chasing down exactly how that software works is neither here nor there.”

Judge Makes Stance Clear 

Binance.US argued in court that the Securities and Exchange Commission’s request was ‘overboard’ and an inconvenience. However, the judge observed that Binance needed to provide some more information about its current custody solution. He also added that he was not entirely confident that BAM was fully in control of its assets. According to SEC attorney Jennifer Farer, a part of the issue is that they do not know what they do not know, which is why the SEC needed large amounts of information about Binance.US’ wallet arrangement. The judge eventually rejected the Securities and Exchange Commission’s inspection plea. 

The Securities and Exchange Commission sued Binance and its founder, Changpeng Zhao. The regulator accused both of running an unlicensed securities exchange. Since then, the SEC has been working on ensuring that assets of US customers would stay in the United States.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.