In a recent development, a district judge has approved the Securities and Exchange Commission’s (SEC) motion to unseal documents related to its lawsuit against Binance US. These documents, originally filed under seal in August, were limited in access, and only available to the attorneys involved in the lawsuit. However, the agency took steps to make several documents, including exhibits for a declaration by SEC Trial Counsel Jennifer Farer, public. Parties involved in the lawsuit had consented to unsealing many of these documents.
SEC seeks transparency with the motion to unseal
This decision comes in the wake of the agency’s accusations of “lack of transparency” against Binance US, coinciding with several high-level executive departures from the company. Binance CEO Changpeng Zhao addressed the departure of Binance US CEO Brian Shroder, acknowledging his accomplishments and stating that Shroder deserved a break. Zhao also expressed confidence in Binance US’s Chief Legal Officer, Norman Reed, as the right person to lead the exchange moving forward.
The SEC initiated its lawsuit against Binance US in June, leveling 13 charges, including operating as an unregistered securities exchange. The initial complaint also alleged that billions of dollars of customer funds had been “commingled in an account” controlled by an entity named Merit Peak, which is associated with Zhao. Shortly after filing the lawsuit, the agency sought an emergency order to freeze Binance US’s assets to safeguard customer funds.
However, a deal between Binance US and the SEC was reached, preventing the asset freeze in exchange for increased transparency and oversight. Part of the agreement stipulated that Zhao and entities under his control would not have access to these funds. In one of its filings on Thursday, the agency accused Binance US’s holding company, BAM, of producing only 220 documents related to the investigation, including “unintelligible screenshots.” This fell short of ensuring the safety of customer assets held by BAM.
Details of the investigation into Binance US uncovered
The agency also raised concerns about Ceffu, a wallet custody software service owned by Binance Holdings Ltd, claiming it appeared to have control over BAM’s crypto assets through an arrangement. A footnote in a separate filing supporting the SEC’s motion to unseal documents revealed that BAM’s external auditor, FGMK, had produced over 6,500 documents primarily concerning BAM’s custody and control of assets. Additionally, BAM’s auditor had issued a letter to the SEC regarding Ceffu’s purported role in custodying customer assets.
The SEC noted that it was unaware of these concerns expressed in the auditor’s June letter until it received the auditor’s document production in July 2023. U.S. Magistrate Judge Zia M. Faruqui of Washington, D.C., instructed the court’s clerk to unseal more than a dozen exhibits fully while making others publicly available with certain information redacted, either partially or entirely. The SEC, in its motion to unseal documents, indicated that it did not object to the sealing or partial sealing of some documents identified by Binance as confidential.
Judge Faruqui granted Binance US, other defendants, and any nonparty a week to provide explanations for designating certain documents as confidential. The SEC’s successful motion to unseal documents in the lawsuit against Binance US sheds light on the ongoing legal battle and concerns regarding transparency. As these documents become public, more details about the SEC’s investigation and Binance US’s operations are likely to emerge. This development underscores the regulatory challenges and scrutiny faced by cryptocurrency exchanges in an evolving regulatory landscape.
