With over $2.2 billion of U.S. customer assets under scrutiny, BinanceUS and its founder, Changpeng Zhao, face allegations by federal regulators who believe these funds are under “significant risk” of misappropriation.
The U.S. Securities and Exchange Commission (SEC) voiced its concerns and accusations in a recent legal filing, stating that immediate action must be taken to prevent possible illicit activities by Zhao and associated entities.
The security freeze proposal: Federal regulators’ preventive approach
This concern has motivated the SEC to propose a freezing order on the substantial assets under BinanceUS’s control. The regulator’s legal representatives have advocated for this action as a preemptive measure to mitigate potential capital flight risks.
They’re calling for a swift judgment that allows U.S. customer assets to be repatriated and frozen, thus averting unauthorized transfers by Zhao or any Binance entities.
Accusations by the SEC include allegations of unregistered securities sales, as well as commingling investor funds with their resources.
Further adding to the gravity of these claims, Zhao’s defiant stance towards the court’s jurisdiction was highlighted, emphasizing the perceived urgency and validity of these preventive measures.
BinanceUS’s subsidiaries, BAM Trading and BAM Management, were accused of being under Zhao’s control and having accumulated “illicit gains” that amount to over $420 million from profits and venture fundraising.
According to the SEC’s latest filings, these subsidiaries are central to their case against Zhao and BinanceUS.
Adding fuel to the fire is the assertion that years of interactions between the SEC and BinanceUS have failed to provide a clear answer on who exactly controls customer assets.
This lack of transparency and the perceived free rein Zhao and BinanceUS have had over billions of dollars’ worth of customer assets further justify the SEC’s demands.
The jurisdiction battle: BinanceUS vs. the SEC
As the legal battle unfolds, a pivotal aspect is the question of jurisdiction. Zhao’s legal representatives assert that the founder, despite his control over or beneficial ownership of U.S. companies and bank accounts, is not subject to U.S. law.
However, the SEC disagrees, citing federal law and precedent as establishing the court’s jurisdiction over both Zhao and BinanceUS.
In the SEC’s perspective, the immediate intervention is vital, given Zhao’s ultimate control over BinanceUS and the potential risk to investor assets. This is particularly significant in light of their allegations of Zhao’s and BinanceUS’s avoidance of U.S. regulation and oversight.
The regulators are concerned about the influence Zhao or BinanceUS could exert over BAM Trading’s employees and operations, thus necessitating immediate action.
The issue of serving Zhao is also problematic, with his “pattern of geographical elusiveness” making it difficult to pin down his exact residence or whereabouts. This situation has led federal regulators to request court permission to serve Zhao through email correspondences with his lawyers.
With the spotlight on BinanceUS, the unfolding events reveal a turbulent regulatory landscape for cryptocurrencies.
The SEC’s motion for a restraining order against BinanceUS due to allegations of mishandling user funds and operating with unregistered securities marks a critical point in this saga.
The freeze of assets is one of the actions sought, the outcome of which could set a precedent for crypto firms operating in a rapidly evolving and often opaque regulatory environment.