Binance.US and the Securities and Exchange Commission agreed to work on a deal that avoids a total asset freeze at the cryptocurrency trading platform, which the regulator has accused of operating illegally.
U.S. District Judge Amy Berman Jackson said Tuesday the two sides appeared “not that far apart” on ways to protect billions of dollars in customer funds without shutting the exchange down while the SEC’s lawsuit proceeds. She referred them to a magistrate judge to work on a compromise agreement.
“Shutting it down completely would create significant consequences not only for the company but for the digital asset markets in general,” Jackson said during a hearing in Washington. The judge said she’d hold off on deciding the SEC’s request for an asset freeze until the work with the magistrate was completed.
The SEC sought the asset freeze last week for Binance.US, a trading platform owned by Binance Holdings Ltd. founder Changpeng Zhao. In its June 5 lawsuit, the SEC accused Binance and Zhao of mishandling customer funds, misleading investors and regulators, and breaking securities rules.
Binance.US, which is fighting the SEC’s suit and says customer assets are safe, argued that blocking the flow of funds would cripple its business and hurt customers. “With a freeze of all corporate assets, banking partners would most likely cease to honor requests to transfer funds for any purpose, including customer redemptions,” attorneys for the exchange wrote in filing Monday.
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According to the lawsuit, Binance improperly moved billions of dollars of customer funds to a bank account for an entity controlled by Zhao. Those funds were transferred to a third party and then appeared to be used to purchase and sell crypto, the regulator said.
Binance.US, in response to the SEC’s request for an asset freeze, had proposed a compromise that would include transferring U.S. customer cryptoassets to new wallets with new private keys that would be under the sole control Binance.US.
As part of its proposal, the exchange also asked for permission to keep paying employees and cover operating costs, while pledging that no assets would be transferred or payments made to benefit any Binance entity without a judge’s order.
The SEC, in its compromise proposal filed with the court, asked that Binance repatriate all U.S. customer assets to the U.S., where they’d be under the control of entities that are outside the reach of Zhao and can handle redemptions for customers.
In an earlier memorandum, the SEC said “Zhao and Binance have a pattern and practice of commingling customer funds” as well as “moving funds outside of the U.S. and/or on the blockchain where they are outside of this court’s reach.”
The memorandum said Binance.US customer assets total over $2.2 billion and described Zhao as “a foreign national who has made overt his views that he is not subject to the jurisdiction of this court.”
The case is SEC v. Binance, 23-cv-01599, U.S. District Court, District of Columbia (Washington, DC).
