Synopsis
A U.S. judge has urged the Securities and Exchange Commission (SEC) to find a resolution with cryptocurrency exchange Binance to allow it to operate in the country as it fights a civil fraud lawsuit from the regulator. The SEC has charged Binance and its US affiliate with mishandling customers’ deposits and lying to regulators. The regulator also sought to freeze the company’s US assets, which Binance said would close it down in the country. A victory for the SEC against Binance could force the company out of the US altogether, accelerating a growing exodus of companies from the country.
AFPA federal judge on Tuesday urged the Securities and Exchange Commission to strike a compromise with Binance that would allow the global cryptocurrency exchange to continue operating in the United States as it fights a civil fraud lawsuit filed by the regulator.
Last week, the SEC charged Binance and its U.S. affiliate with mishandling customers’ deposits and lying to regulators. It also sought to freeze the company’s U.S. assets, a move that Binance claimed would force it to shut down in the United States.
At a hearing in Washington on Tuesday, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia asked the two sides to confer on a possible agreement over the asset freeze, telling them that they were closer to a deal than the rhetoric in their court filings suggested. Jackson ordered them to continue negotiating and to submit a status update by Thursday.
She also expressed skepticism about the SEC’s use of its enforcement powers to regulate the crypto world, calling it “inefficient and cumbersome.”
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View Details » The moves against Binance are part of an increasingly aggressive regulatory crackdown on the crypto industry. A day after filing the Binance lawsuit, the SEC also sued Coinbase, the largest U.S. exchange, for dealing in unlicensed securities.
That one-two punch rattled the industry, raising the specter of a yearslong legal battle over the future of crypto in the United States. Scrutiny has increased since November, when the FTX exchange collapsed overnight, leading to criminal charges against its founder, Sam Bankman-Fried.
The effort to freeze Binance’s U.S. assets nonetheless stood out as one of the SEC’s most aggressive steps so far against crypto companies. While previous actions have forced smaller crypto firms to pay fines or discontinue certain products, a victory over Binance could drive the world’s largest exchange out of the country entirely, accelerating a growing exodus of companies.
In court filings on Monday, lawyers for Binance’s American arm, Binance.US, argued that the SEC’s proposed asset freeze would mean the company could not pay vendors, employees and suppliers, causing its operations to “quickly grind to a halt.”
“We’re not willing to accept a death penalty eight days into the case,” a lawyer for Binance.US said at the hearing.
Carl Tobias, a professor at the University of Richmond School of Law, said the request for an asset freeze may have been intended to send a message to the broader crypto industry. “It’s part of reasserting the SEC’s authority to regulate in this area,” he said.
Binance.US oversees $2.2 billion in crypto holdings, according to the SEC The freeze would have no effect on the company’s larger global exchange, which is already prohibited from operating in the United States.
Last week, the SEC disclosed that it has been investigating Binance since the summer of 2020. A few months ago, regulators informed Binance that it was considering filing an enforcement action against the company.
After the SEC sued Binance last week, Binance.US said its banking partners would no longer provide crucial payment channels, forcing the exchange to stop offering trading in U.S. dollars.
The SEC said in court papers that none of its moves should have come as a surprise to Binance and its CEO, Changpeng Zhao, who is also a target of the lawsuit.
“Defendants knew that their conduct with respect to U.S. investors was illegal and risked U.S. government enforcement actions,” the SEC said in a filing. “Instead of ceasing such illegal activity, Zhao and Binance doubled down.”
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