Tussle Over Technological Inspection
In a recent move, the US Securities and Exchange Commission (SEC) faced a significant barrier in its ongoing litigation against Binance.US, a major crypto-trading platform. The federal magistrate judge, Zia Faruqui, declined the SEC’s request to immediately probe into Binance.US’s software infrastructure. This comes as the SEC intensifies its investigation into the firm’s alleged breaches of American securities rules.
SEC’s Struggle with Binance.US
The SEC’s legal battle began in June against Binance.US, its global counterpart Binance Holdings Ltd., and CEO Changpeng Zhao. Since then, the SEC claims it has encountered resistance in acquiring vital information from the American exchange. The Wall Street watchdog sought permission on Monday to inspect Binance.US’s software and compel the exchange to disclose additional crucial data.
However, Judge Faruqui expressed reservations about granting this inspection right away. He advised the SEC to refine its demands and engage further with potential witnesses.
The Heart of the Controversy
Binance.US’s distinct status as an entity crafted specifically for American consumers has come under the SEC’s scrutiny. The regulator suspects that Binance.US is not truly autonomous from Binance and has violated several US securities regulations. Central to the SEC’s argument is the idea that a thorough inspection of Binance.US’s tech stack might reveal undisclosed ties to the global exchange.
Binance.US’s legal team, on the other hand, has critiqued the SEC’s efforts as both overreaching and akin to a “fishing expedition.” They have also been hesitant to present top executives for questioning, stating these officials lack direct insight regarding client assets’ security and management.
Repercussions for Binance.US
The tension with US regulatory bodies has had profound implications for Binance.US. Post the SEC’s lawsuit in June, the crypto exchange has witnessed a nosedive in its trading volume. Following the legal challenges, the company lost its banking allies, paused US dollar transactions, and initiated several layoffs. To add to their woes, former CEO Brian Shroder left his position amidst the firm’s significant staff reductions.
Matthew Martens of WilmerHale, representing Binance.US, voiced the company’s commitment to meeting the SEC’s “targeted requests.” However, he showed strong opposition to what he termed the “foolishness” of some of the regulator’s demands.
The Road Ahead
This recent hiccup over expedited discovery marks just the beginning of the SEC’s lawsuit against Binance.US. The core concern for the SEC is to guarantee Binance.US retains control over its customer assets throughout the litigation period.
Following the lawsuit, a consensus was reached between the SEC and Binance.US to avoid a total freeze of the latter’s assets. However, the SEC has since voiced its dissatisfaction over not obtaining the essential documents or access to key witnesses. Concluding Monday’s hearing, Judge Faruqui hinted at the need to progress the case, implying that a resolution must eventually be reached.
