Binance.US & SEC Continues to Clash Amidst Investigation

On 18 September 2023, the United States (US) Securities and Exchange Commission (SEC) encountered an initial hurdle in its pursuit of immediate access to Binance.US's software during a court hearing.

Judge Faruqui presiding over the proceedings expressed a reluctance to grant the SEC's request for software inspection at this juncture.

This hearing had convened to deliberate upon the SEC's motion compelling Binance to furnish comprehensive information and facilitate greater availability of its executives for deposition — a contentious issue that has embroiled the two parties in recent weeks.

During the hearing, Judge Zia Faruqui articulated his disinclination to permit the software inspection in its current form.

Instead, he suggested that the SEC formulate more precise discovery requests and engage a broader spectrum of witnesses in their pursuit of information.

The judge said:

"I'm not going to order from the bench right now that they produce or not produce things. Let's continue to try to work this out. I just want to keep things moving."

The SEC has persistently asserted its struggle in obtaining pertinent information from Binance.US ever since it initiated legal action against the American branch of the cryptocurrency exchange, as well as its global counterpart Binance Holdings Ltd and CEO Changpeng Zhao (CZ), on 5 June.

This legal action pertains to alleged involvement in the sale of unregistered securities.

Notably, on 15 September, the SEC lodged accusations of noncooperation against Binance.US in the ongoing investigation.

The regulatory body emphasised that Binance.US's parent company, BAM Trading, had produced a mere 220 documents during the discovery process.

A substantial portion of these documents were characterised as "unintelligible screenshots" or lacked dates and signatures, according to the SEC.

Furthermore, the regulator pointed out BAM's reluctance to make key witnesses available for deposition, only agreeing to four depositions deemed suitable by the company.

The SEC's request encompasses a wide array of documents, ranging from records detailing the handling of customer assets to statements affirming the company's financial reserves and overall fiscal soundness. Yet, these requests, according to the regulator, have gone unanswered.

However, it is imperative to acknowledge that Binance has, on previous occasions, framed the SEC's persistent discovery requests as "unduly burdensome."

Conversely, the SEC contends that Binance is uncooperative, despite having consented to a discovery-related consent order in the SEC's case, which involves allegations of unregistered securities operations among other charges.

BAM Trading's legal representatives have raised objections, characterising the SEC document requests as excessively broad and a source of significant inconvenience for the exchange.

The legal team also contends that these requests place an undue burden on the exchange, imposing substantial financial costs.

They assert that complying with these demands has forced BAM to incur significant expenses.

Furthermore, BAM's lawyers argue that certain documents either do not reside within the exchange's possession or lie beyond the scope of relevance to the SEC's ongoing investigation.

In the filling, BAM’s lawyers wrote:

"BAM objects to the [SEC's] requests to the extent that they are vague, ambiguous, overbroad, lacking in particularity or oppressive."

Despite these protests, regulatory authorities appear steadfast in their pursuit of compliance.

Judge Faruqui's recent ruling, denying the SEC immediate access to Binance.US's software and other pertinent documentation, represents a partial setback for the regulator in its ongoing legal battle against the cryptocurrency exchange.

The judge has established a pivotal timeline, designating 10 October as the deadline for the submission of a joint status report.

Furthermore, a subsequent hearing has been scheduled for 12 October.