SEC Demands Extensive Probe into Binance.US: Asset Custody under Scrutiny

The U.S. Securities and Exchange Commission (SEC) has escalated its legal battle against Binance.US, urging a court in D.C. to allow inspection into the exchange's asset custody services. This move comes as the SEC doubles down on its allegations that Binance.US has been evasive with requested documents.

The latest development involves a protective order, aimed to counter what the exchange terms as the SEC's "fishing expedition," that Binance.US sought in June. This matter was referred to the Magistrate Judge Zia Faruqui by Federal Judge Amy Berman Jackson.

The SEC's legal action against Binance.US dates back to June when the regulatory watchdog filed a lawsuit targeting Binance.US, its global parent company Binance Holdings, and its Founder Changpeng Zhao.

The main allegation was that they operated an unlicensed securities exchange, raising concerns about investor protection and regulatory compliance. In light of the developments, the SEC has made a compelling argument for the need to conduct a comprehensive inspection into Binance.US.

SEC's Legal Battle against Binance.US

A major point of contention in this legal matter is Binance's custody platform, Ceffu, which was rebranded earlier this year from Binance Custody. The SEC has raised suspicions that Ceffu may be serving Binance.US, potentially facilitating the transfer of U.S. customer funds outside the country.

"The SEC seeks an order compelling BAM to produce documents and communications concerning any entity providing it wallet custody software and related services," the filing said, reflecting the SEC's frustration with what it sees as evasive responses and changing narratives from BAM.

The SEC has accused Binance.US of providing "inconsistent representations about key facts, slow-rolled small productions of documents and information, and stonewalled on entire categories of information that would likely shed light on its shaky assertions concerning the custody of customer assets."

However, Binance.US has mounted a robust defense against the SEC. On September 12, the exchange's legal team submitted sealed documents in response to the SEC's motion to compel, labeling many of the regulator's demands as "unreasonable" and "excessively burdensome."

Binance.US Faces Drastic Trading Volume Drop

Meanwhile, recent data from Amberdata on The Tie Terminal revealed that the trading volume on Binance.US had plummeted to a mere $5.09 million, which is a stark contrast to the approximately $230 million that was recorded on September 17, 2022. The exchange’s lowest point was recorded on September 9 when trading activity dipped to $2.97 million.

Furthermore, Binance.US is grappling with a wave of high-level departures as its Head of Legal, Krishna Juvvadi, and the Chief Risk Officer, Sidney Majalya, recently stepped down from their roles. This recent leadership shake-up followed closely on the heels of the CEO, Brian Shroder's recent exit, which occurred this month in the midst of heightened regulatory scrutiny surrounding the exchange.

In June, Finance Magnates reported that negotiations had commenced between Binance.US and the SEC, aimed at preventing a comprehensive freeze of the exchange's assets. These negotiations sought to strike a balance between safeguarding investor funds and allowing the exchange to continue operating under regulatory oversight.