Week In Crypto: Binance Accuses SEC Of ‘Fishing Expedition’

August 18, 2023
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Binance US files motion to protect itself from discovery requests, PayPal puts crypto on hold in the UK, a New York couple plead guilty to laundering billions of dollars of stolen bitcoin, and Bankman-Fried back in jail.

Binance US files motion to protect itself from discovery requests, PayPal puts crypto on hold in the UK, a New York couple plead guilty to laundering billions of dollars of stolen bitcoin, and Bankman-Fried back in jail.

The owners of Binance US have accused the Securities and Exchange Commission (SEC) of conducting a “fishing expedition” following a request for an accounting of the company’s customer assets.

In a new court filing, Binance US owner BAM Trading Services has requested a motion for a protective order that would limit the SEC’s ability to pursue further discovery requests.

As per the court filing, the defendants argue that the SEC is abusing its right to discovery by requesting access to company information and personnel that are beyond the scope of the charges filed.

In June, as covered by VIXIO, the SEC filed 13 charges against Binance US and Binance CEO Changpeng Zhao, alleging multiple counts of unregistered securities violations and fraud.

One of the SEC’s earliest motions in the case was a request to freeze Binance US customer assets on the grounds that they were at risk of loss, theft or transfer during proceedings.

The motion was rejected by the court, and both parties were asked to come to a mutual settlement on asset protection.

However, the defendants then missed two deadlines to produce a sworn accounting of Binance US customer assets — the original deadline and a subsequent extension of it.

Since the extended deadline passed, no new filings had been added to the docket until the defendants filed the motion for a protective order this week.

In the order, BAM Trading Services said it has submitted an accounting of Binance US customer assets to the SEC, therefore proving the value and safety of those assets.

The SEC has yet to comment on the quality of the accounting and, before it does so, the defendants have taken the opportunity to limit the SEC’s demands in other areas.

According to the defendants, the SEC has asked that the defendants produce “all communications” concerning “dozens” of topics, many of which have “nothing to do with customer assets”.

For example, the SEC has asked for six employees and executives to produce information dating back to November 2022, and has asked for at least six executives, including the CEO and CFO, to be made available for depositions.

BAM Trading Services has objected to the requests on the grounds that it has already offered four witnesses for depositions, including the two “best positioned” to address questions about the custody and security of customer assets.

The court has since published a response stating that the order has been referred to a magistrate judge for consideration.

Binance shuts down payments service

In other Binance news, the world’s largest crypto exchange has announced the closure of Binance Connect, a fiat onramp service that was designed to help crypto businesses accept payments.

Launched in March last year, Binance Connect supported 50 cryptocurrencies and all major payment methods, including payments using Visa and Mastercard cards.

Speaking to VIXIO, a Binance spokesperson said the service was shuttered so that the company could focus on its “core” product areas and “long-term strategy”.

However, both Binance Pay and Binance Card remain active. Binance Pay allows consumers to make payments and merchants to accept payments directly in cryptocurrency.

Binance Card, which is issued by Visa or Mastercard depending on the local market, allows Binance exchange users to “spend” their crypto, but the crypto is converted to fiat currency before being credited to the merchant.

PayPal 'pauses' crypto trading for UK customers

In the UK, PayPal has announced plans to put crypto trading on hold while the company adapts its procedures to comply with new regulations.

In an email sent to UK customers, PayPal said that crypto purchases will be disabled on October 1 and should be re-enabled in early 2024.

“We’re taking this measure in response to new rules enacted by the UK Financial Conduct Authority (FCA) that require crypto firms to implement additional steps before customers can purchase crypto,” it said.

In June, the FCA introduced “tough” new rules on the marketing of crypto-assets, including a “cooling-off period” for first-time investors from October 8 onwards.

According to the FCA, the rules will force crypto firms to ensure that customers have the “appropriate knowledge and experience” to invest in crypto.

Those promoting crypto must place clear risk warnings and ensure adverts are clear, fair and not misleading, and “refer a friend” bonuses are prohibited.

New York couple plead guilty to money laundering charges

A married couple from New York have pleaded guilty to money laundering offences following the hack and theft of more than 120,000 bitcoin from Bitfinex, a crypto exchange that shares its ownership structure with Tether.

Ilya Lichtenstein, 35, and Heather Morgan, 33, were arrested in February 2022 after the US government seized 95,000 of the stolen bitcoin from wallets under their control. At the time, the recovered bitcoin was worth $3.6bn.

According to the Department of Justice (DOJ), Lichtenstein employed numerous “sophisticated” laundering techniques, including using fictitious identities to set up online accounts and computer programs to automate transactions.

He also deposited the stolen funds into accounts on darknet markets, crypto mixing services and business bank accounts based in the US.

He even converted a portion of the stolen bitcoin into gold coins and concealed them by burying them.

Bankman-Fried back in jail

Finally, a judge in New York has revoked bail for Sam Bankman-Fried, the former FTX CEO who is accused of multiple counts of fraud and conspiracy to commit money laundering.

As requested by the DOJ, Bankman-Fried is now back in jail on remand after being accused of witness tampering — the witness being his ex-girlfriend and former colleague Caroline Ellison, whose private diary he leaked to the New York Times.

Ellison, the former CEO of Alameda Research, an FTX trading arm, has already pleaded guilty to multiple criminal charges, including fraud.

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