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Binance avoids having its US assets frozen as it litigates with the Securities and Exchange Commission (SEC), but it will have to answer to the testimony of a former Binance US CEO. Meanwhile, Binance retreats from Nigeria and Cyprus.
A US District Court judge has ordered Binance and the SEC to come to an agreement that will protect the assets of Binance’s US customers and affiliates.
Judge Amy Jackson said in court that she believes the two parties can guarantee the assets’ safety without the need for a temporary restraining order (TRO) to freeze and repatriate the assets.
“I think the nitty-gritty of it — because it's very detailed — is better handled by all of you than by me,” she said.
“And if you don't work it out among yourselves, then the government risks having an order that doesn't go as far as it wants it to go, and the defence risks having an order that it really finds it hard to live under.”
After both sides argued their case, Judge Jackson ordered them to work with an assigned magistrate judge to come to an agreement.
As per the order, the agreement must secure, protect and segregate Binance US assets — which are currently worth about $2.2bn — and must also allow Binance US entities to make necessary business expenditures.
In addition, the agreement must commit the defendants to “expedited discovery” and an accounting of Binance’s US assets, while ensuring that no evidence is destroyed and none of those assets are moved offshore.
The two parties were given two days to come to an agreement, which will form that basis of a consent order.
As covered by VIXIO, the SEC filed an emergency motion for a TRO one day after it filed 13 charges against Binance, its CEO Changpeng Zhao and two US affiliates.
In the 67-page emergency motion, the SEC argued that the TRO is necessary to protect Binance’s US assets, particularly those that belong to customers.
As alleged by the SEC, there is little separation of assets between Binance’s global business, Binance.com and its US platform, which is owned by a holding company called BAM Trading.
In 2020, as was explained in the emergency motion, BAM Trading signed a Wallet Custody Agreement (WCA) with Binance.com, authorising Binance’s global arm to serve as the “custodian” of BAM Trading’s digital assets.
Under the WCA, BAM Trading agreed not to exercise “day-to-day oversight” over Binance.com’s handling of these assets.
As noted by the SEC, Binance US customers therefore rely “entirely” on Zhao and Binance.com to protect their assets, despite both “steadfastly” insisting that they are subject to no particular jurisdiction.
Former Binance US CEO's damning testimony
Also this week, the SEC submitted a 37-page transcript of an interview between its staff and Brian Brooks, who in mid-2021 served as Binance US CEO for three months.
In the transcript, Brooks appears to corroborate the SEC’s allegations that there is little segregation of assets, decision-making power or beneficial ownership between Binance US and Binance.com.
Brooks also highlighted that staff at Binance US had been paid in Binance Coin (BNB) tokens — an asset that the SEC claims is an unregistered security.
But as Binance did not launch BNB in the US until after Brooks had left the company, the BNB used to pay staff was taken straight from the Binance.com balance sheet.
The “biggest risk” for Binance US, according to Brooks, was that it was “entirely” dependent on technology that was based in China.
Brooks said he spent the first 80 days of his tenure as CEO speaking with investors about ways to onshore that technology, only for his efforts to be overruled, presumably by Binance.com CEO Zhao.
“And on that day, I realised, huh, I'm not actually the one running this company,” he said, “and the mission that I believe I signed up for isn't the mission. And as soon as I realised that, I left.”
On other occasions, Brooks said Binance US staff would back-channel with Zhao or vice versa, undermining his authority as Binance US CEO.
“I would endeavour to shut it down,” he said, “on the theory that CZ [Zhao] is not the CEO of this company — this is a US company, you work for me, not him, this has to stop.”
According to Bitfinixed, an anonymous crypto journalist and analyst: “Brian Brooks was hired as a sock puppet, and then bailed when he figured it out.”
Binance run out of Nigeria, deregisters in Cyprus
Outside the US, Binance is also under pressure in other jurisdictions. In Nigeria, this week the Securities and Exchange Commission (SEC) issued a circular warning investors not to trade on Binance.
“Binance Nigeria Limited is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal,” said the SEC. “Any member of the investing public dealing with the entity is doing so at his/her own risk.”
Based on the circular, the SEC has directed Binance Nigeria Limited to “immediately” stop soliciting Nigerian investors by any means and through all channels.
Meanwhile in Cyprus, this week the country’s securities regulator revealed that Binance’s Cypriot subsidiary has applied to deregister itself as a crypto-asset service provider (CASP).
"We are working hard to prepare our business to be fully compliant with MiCA when it is implemented in the next 18 months," a Binance spokesperson said in an email to CoinDesk.
"To that end, we have made the decision to pull back efforts in Cyprus to focus on our efforts on fewer regulated entities in the EU."
Deregistration will mean that Binance has spent less than a year as a regulated entity in Cyprus, after obtaining its CASP status in October last year.
