Binance.US has vehemently opposed the US Securities and Exchange Commission’s (SEC) proposed temporary restraining order, claiming that it would effectively end its business operations.
The crypto exchange filed a response on June 12, criticizing the SEC’s emergency motion as “draconian and unduly burdensome.”
BinanceUS argues that if the restraining order is granted, it would significantly impact BAM Trading Services Inc., the entity responsible for providing crypto trading and exchange services for Binance.US. The filing emphasized that customers would be the primary victims, hindering BAM’s ability to operate and defend itself in the ongoing litigation.
Exchange disputes SEC’s failure to identify securities
Of significant note, Binance.US challenged the SEC’s overall approach to pursuing legal action, asserting that “all of the SEC’s claims fail” due to the regulator’s failure to identify any specific security trading on BAM’s platform. The SEC had previously alleged that at least 67 cryptocurrencies qualified as securities.
“The SEC suggests that it is a foregone conclusion that cryptocurrency is a security, but that is not the case. That numerous cryptocurrency exchanges, including BAM, have operated in the United States for years without interference by the SEC belies the claim that they are clearly covered by the securities laws.”
Moreover, Binance.US highlighted its extensive cooperation with the ongoing SEC investigation, which began in December 2020. According to the filing, the company provided over 700,000 individual communications and comprehensive data on its day-to-day operations due to this investigation.
Implications for banking partners and customers
The company expressed concerns that a freeze on all corporate assets would likely lead to banking partners refusing to facilitate fund transfers, including customer redemptions. In fact, Binance.US revealed that one of its banking partners had already informed them of its intention to cease servicing the company from June 14.
Addressing customer concerns, Binance.US reassured that customer assets were secure, appropriately segregated, and available for withdrawal.
The SEC initially launched a significant legal action against Binance and its affiliates on June 5, alleging that the cryptocurrency exchange failed to register as a securities exchange and permitted US customers to trade cryptocurrencies classified as securities.
The following day, the SEC filed an emergency motion for a temporary restraining order, seeking to freeze assets held on Binance.US until the exchange could demonstrate that funds were beyond the reach of CEO Changpeng Zhao (CZ) or any other Binance executive.
Liquidity plummets on Binance.US amid regulatory pressure
In response to mounting regulatory pressure, Binance.US announced the suspension of US dollar deposits on June 9 to safeguard customer interests.
The impact of the SEC’s legal action against Binance has been evident, with liquidity on Binance.US plummeting nearly 80% in the past week, according to crypto data analysis firm Kaiko. Market makers and traders reportedly deserted the exchange amid regulatory scrutiny.
While both Binance and Binance.US have consistently refuted the SEC’s claims on social media, their joint memorandum submitted with the filing represented their first official response to the allegations.
The memorandum argued that the SEC failed to provide evidence of mishandling or misuse of BAM customer assets and characterized the SEC’s actions as a manufactured emergency for its own purposes.