Binance.US under SEC scrutiny for alleged non-compliance in asset custody probe

The U.S. Securities and Exchange Commission (SEC) alleges that Binance.US has not responded to important inquiries about customer assets and other critical aspects of an active investigation.

The SEC has expressed concerns in a joint status report to a Washington, D.C. District Court on March 5, stating that BAM Trading Services, which operates as Binance.US, has not provided satisfactory responses to inquiries regarding the custody of customer assets. The regulatory body has requested the court’s assistance to expedite the discovery process.

According to the SEC, Binance.US has shown reluctance or inability to comply with basic discovery obligations, including producing necessary attachments and metadata related to requested documents.

A central issue in the investigation is whether Binance’s non-U.S. arm employees had access to Binance.US customer assets, a question to which the SEC claims Binance.US has not adequately responded.

Contrary to the SEC’s allegations, Binance.US asserts that it has adhered to all requests for information, describing them as “exceptionally broad.” The company argues that the allegations regarding customer assets are baseless and claims to have exceeded its obligations to the regulator by providing thousands of documents related to its asset custody practices, including declarations under oath and monthly reports.

Binance.US also highlighted its cooperation with several inspections of shared custody devices involving customer assets.

In response to the SEC’s ongoing investigation, Binance.US has requested the court to conclude the expedited discovery process, citing full compliance with the regulator’s demands.

The company has also voiced concerns over the tangible impacts of the SEC’s actions, including the loss of banking partners and a decrease in active users. These challenges have led to significant operational changes within the company, including the termination of more than 200 employees, equating to two-thirds of its workforce since June 2023.

Binance.US COO Christopher Blodgett attributed these staff cuts to a substantial decline in revenue and an increase in operational and legal costs following the SEC’s actions.

This dispute follows a broader legal challenge against Binance, Binance.US, and their founder and former CEO Changpeng Zhao, initiated by the SEC on June 2023. The lawsuit accuses them of selling unregistered securities and mixing customer assets with those of a separate entity controlled by Zhao.

In a separate legal matter, Binance reached a settlement with the U.S. Department of Justice on Nov. 21, agreeing to pay $4.3 billion over violations of U.S. anti-money laundering and terrorism financing laws. As part of the settlement, Zhao pleaded guilty to money laundering charges and is scheduled for sentencing on April 3, potentially facing up to 18 months in prison.