Binance is suing with US regulators over asset freeze
A federal judge on Tuesday urged the Securities and Exchange Commission to reach a compromise with Binance that would allow the global cryptocurrency exchange to continue operating in the United States while fighting a civil fraud case brought by the regulator.
Last week, the SEC charged Binance and its US subsidiary with mishandling customer deposits and lying to regulators. It also attempted to freeze the company’s US 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 discuss a potential asset freeze agreement, telling them they were closer to a deal than the rhetoric in their court documents suggested. Judge Jackson ordered them to continue negotiations and file 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”.
The moves against Binance are part of an increasingly aggressive regulatory crackdown on the crypto industry. A day after the Binance lawsuit was filed, the SEC also sued Coinbase, the largest US exchange, for trading in unlicensed securities.
That one-two punch shocked the industry and created the specter of a years-long legal battle over the future of crypto in the United States. Scrutiny has increased since November, when the FTX stock market collapsed overnight, leading to criminal charges against its founder, Sam Bankman-Fried.
The attempt to freeze Binance’s US assets nevertheless stood out as one of the SEC’s most aggressive moves yet against crypto companies. While past actions have forced smaller crypto companies to pay fines or discontinue certain products, a victory over Binance could completely drive the world’s largest exchange out of the country, accelerating a growing corporate exodus.
In court filings on Monday, lawyers from Binance’s US arm, Binance.US, argued that the SEC’s proposed asset freeze would mean the company would be unable to pay vendors, employees and suppliers, causing operations to “quickly grind to a halt.” .
“We are not prepared to accept a death sentence eight days after the trial,” a Binance.US lawyer 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 wider 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 banned from operating in the United States.
Last week, the SEC announced 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 offer critical payment channels, forcing the exchange to stop offering US dollar trading.
The SEC said in court filings that none of its moves should have come as a surprise to Binance and its CEO, Changpeng Zhao, who is also the target of the lawsuit.
“Defendants knew their conduct with respect to U.S. investors was unlawful and risked enforcement action by the U.S. government,” the SEC said in a document. “Instead of stopping such illegal activities, Zhao and Binance doubled down.”