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Binance.US COO claims SEC lawsuit led to banks withdrawing support, strangling business

binance-us-coo-claims-sec-lawsuit-led-to-banks-withdrawing-support-strangling-business
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Binance.US COO claims SEC lawsuit led to banks withdrawing support, strangling business

Binance.US, the American subsidiary of the global cryptocurrency exchange Binance, experienced significant operational disruptions following legal challenges by the United States Securities and Exchange Commission (SEC).

The lawsuit, filed in June last year, accused Binance, Binance.US, and its founder, Changpeng Zhao, of engaging in activities such as selling unregistered securities, among other allegations. The legal action led to a drastic reduction in the company’s workforce, with more than 200 employees being laid off as the firm’s revenues saw a sharp decline.

Christopher Blodgett, the Chief Operating Officer of Binance.US, detailed the impact of the SEC’s lawsuit in a deposition in December, which was made public in a court filing on March 5. According to Blodgett, the lawsuit has severely damaged the company’s relationships with banking institutions, making it challenging to conduct transactions in U.S. dollars.

He described the company as “radioactive” to banks, indicating that the association with Binance.US could result in scrutiny from the SEC.

The legal battles have not only affected the company’s staffing and banking relationships but also its market position. Blodgett revealed that customer assets on the platform diminished by around $1 billion shortly after the SEC’s legal action.

The loss of banking support and the subsequent inability to find new banking partners have been described as “effectively choking the business.” Prior to the lawsuit, Binance.US collaborated with over 20 market makers; this number has since decreased to less than five, further indicating a loss of institutional trust.

Moreover, the SEC’s accusations against Binance.US include engaging in wash trading to artificially boost trading volumes and commingling user funds in an account linked to Zhao at Merit Peak.

The regulatory body also expressed concerns over the potential transfer of customer funds offshore, leading to a temporary restraining order (TRO) to freeze Binance.US’ assets. However, this TRO was dismissed by a judge the following day.

In a related development, Binance, Binance.US, and Zhao reached a settlement with the Department of Justice, Treasury, and the Commodity Futures Trading Commission in November, agreeing to pay $4.3 billion for violating money laundering and terrorism financing laws. Despite this settlement, the SEC is continuing its investigation and maintaining its charges against the cryptocurrency exchange.

Zhao is set to face a sentencing hearing on April 3 after pleading guilty to a charge of money laundering, with a possible sentence of up to 18 months in prison.