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Cryptogambling / Binance, SEC reach temporary agreement over customer funds amid lawsuit

Binance, SEC reach temporary agreement over customer funds amid lawsuit

Publish Date: 19/06/2023

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Global cryptocurrency exchange Binance and its U.S. affiliate, Binance.US, have reached a temporary agreement with the U.S. Securities and Exchange Commission (SEC) regarding the handling of customer funds during the course of an ongoing lawsuit.

The agreement, signed off by Judge Amy Berman Jackson of the District Court for the District of Columbia, aims to address the SEC’s concerns while allowing Binance.US to continue its operations with certain restrictions.

The deal requires Binance to move all U.S. customer funds and wallet keys back onshore and to ensure that only Binance.US employees can access them.

This means that Binance will no longer be able to offer its services to U.S. customers directly and will instead have to rely on its U.S.-based subsidiary to prevent any unauthorized movement of assets and maintain the security of customer holdings.

To achieve this, Binance.US will implement strict controls to prevent officials from Binance from accessing private keys, hardware wallets or root access to Binance.US’s Amazon Web Services tools.

The temporary agreement came as a response to the SEC’s motion to freeze all assets belonging to Binance.US while pursuing charges related to securities violations.

The SEC expressed concerns about potential offshore fund transfers or destruction of records if a temporary restraining order (TRO) was not granted. Binance.US’s legal representatives argued against freezing all assets, saying it would be overly punitive.

Judge Jackson encouraged the parties to find a mutually agreeable stipulation rather than impose a TRO, which would have a limited duration of two weeks. Given the extensive documentation already filed, consisting of over 4,000 pages of exhibits, the judge emphasized the need for sufficient time to prepare during a recent hearing.

Other provisions

Aside from restricting access to customer funds, the proposed agreement includes other provisions. Binance.US will create new cryptocurrency wallets inaccessible to global employees, share detailed information about its business expenses, and cooperate with an expedited discovery schedule. U.S.-based customers will still be able to withdraw their funds during this period.

While this temporary agreement addresses immediate concerns and sets guidelines for the handling of customer assets, it does not encompass the broader lawsuit filed by the SEC against Binance and Binance.US.

The lawsuit accuses the entities of offering and trading unregistered securities, along with allegations of poor practices and commingling of funds.

In response to the temporary agreement, SEC Director of Enforcement Gurbir Grewal highlighted the importance of protecting investor assets. He expressed the importance of restricting access to customer funds, particularly due to the alleged control Binance and its CEO, Changpeng “CZ” Zhao, have over customer assets.

“Given that Changpeng Zhao and Binance have control of the platforms’ customers’ assets and have been able to commingle customer assets or divert customer assets as they please, as we have alleged, these prohibitions are essential to protecting investor assets,” said Gerwal in a press release.

“Further, we ensured that U.S. customers will be able to withdraw their assets from the platform while we work to resolve the alleged underlying misconduct and hold Zhao and the Binance entities accountable for their alleged securities law violations.”

Binance.US posted on Twitter on Saturday, acknowledging the impact of the ongoing legal proceedings on their business and reputation, saying, “This fight has damaged our business and our reputation but not our fighting spirit or our resolve to defend ourselves against unwarranted charges.”

An official statement released on the same day from a Binance spokesperson declared that although the SEC’s request for emergency relief was entirely unwarranted, the company was pleased that the disagreement was resolved on mutually acceptable terms.

Binance reiterated that its customers’ funds had been and would always be safe on all Binance-affiliated platforms.

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