SEC continues probe into Binance.US for potential fraud similar to FTX case

The U.S. Securities and Exchange Commission (SEC) continues its investigation to uncover proof that Binance.US may have had a backdoor mechanism akin to FTX’s, allowing potential control over customer assets.

According to a Nov. 27 report, the SEC is intensifying its investigation into Binance.US over concerns of potential mismanagement of customer assets, a situation reminiscent of the recent FTX controversy.

Back in June, the SEC initiated legal action against both Binance and its American counterpart, Binance.US. The charges leveled against them included the alleged sale of unregistered securities.

The lawsuit also accused Binance and its founder, Changpeng Zhao, of being involved in a sophisticated conspiracy that included fraudulent activities, conflicts of interest, insufficient disclosure, and blatant disregard for legal regulations.

Central to the SEC’s allegations is the claim that Binance.US had discretionary control over customer assets, with funds reportedly being transferred to Sigma Chain, a Switzerland-based entity under Zhao’s command.

During a federal court hearing on Nov. 27, Binance.US’s legal representatives countered these allegations, asserting the absence of any evidence of asset misuse. They urged U.S. Magistrate Judge Zia Faruqui to consider halting the SEC’s investigation, citing a lack of substantiated claims of fraud.

Matthew Laroche, representing Binance.US, highlighted the escalating expenses resulting from the lawsuit, noting a drastic 90% reduction in Binance.US’s assets and a halving of its user base since the SEC’s legal action commenced.

Binance’s guilty plea in anti-money laundering case

This plea coincides with Binance and Changpeng Zhao’s decision to plead guilty to violations of U.S. anti-money laundering regulations, agreeing to a substantial $4.3 billion settlement with various U.S. authorities, including the Justice Department, Treasury, and Commodity Futures Trading Commission.

However, the case brought forward by the U.S. Justice Department did not address the fraud-related accusations that the SEC had included in its June legal action against the cryptocurrency exchange.

Judge Faruqui, overseeing the case between Binance and the SEC, remarked that the guilty pleas in the separate case might reduce the likelihood of Binance.US and Zhao misappropriating customer funds.

He expressed a need for a resolution, stating, “at some point, I have to make a leap of faith and say enough is enough.”

Faruqui has requested both parties to work towards a resolution and provide an update by Dec. 15.

In a related development, Zhao awaits a court decision on whether he can temporarily leave the U.S., with plans to return two weeks before his sentencing in February.

The judge has currently restricted his travel to the UAE pending a review motion from the U.S. government.

Zhao potentially faces up to 18 months in prison, as per federal sentencing guidelines, but some legal experts have also speculated that he may face up to 10 years in prison.