Key Takeaways
The US Securities and Exchange Commission (SEC) has taken legal action by filing a temporary restraining order to freeze Binance assets after a substantial outflow of $790 million was withdrawn by investors within a 24-hour period.
The proposed order aims to restrict Binance.US, the American subsidiary of the world’s largest cryptocurrency exchange, from accessing funds in its customers’ wallets. However, it would still allow customers to make withdrawals independently.
This emergency measure was introduced on Tuesday evening, one day after US regulators sued Binance’s CEO, Changpeng Zhao, alleging a range of compliance and control failures. The lawsuit accused Binance of engaging in a “web of deception” and demonstrating a “blatant disregard for federal securities laws,” causing turmoil among investors.
In an effort to alleviate concerns, Zhao tweeted on Tuesday evening that the restraining order would solely impact Binance.US funds and would not affect assets held by Binance.com.
Binance.US operates as a separate company and exchange to serve the US market, with significantly lower trading volumes compared to Binance. As of June 2022, Binance.US had a 24-hour trading volume of $147.3 million, while Binance reported $11.9 billion in trades during the same period.
According to the court filing, the SEC argues that the temporary restraining order is necessary to safeguard customer assets and prevent the dissipation of available assets, given Binance’s alleged years of misconduct and disregard for US laws.
If the order is granted, Binance would be required to surrender possession, custody, or control over customer assets within five days. Within 30 days, Binance would need to transfer holdings in customer accounts to new wallets with private keys, including new administrative keys. The emergency motion seeks to prevent Binance from appropriating customers’ funds amid the ongoing withdrawals.
While customer withdrawals will continue, exceptions would apply to “Binance Entities.”
Binance maintains that customer assets are secure. CEO Zhao responded to news of the requested order by retweeting a post highlighting the exchange’s resilience in weathering previous challenges, stating that Binance had already “survived a few bank runs this year, while some US banks haven’t.”
The SEC’s lawsuit, consisting of 13 charges filed on Monday, alleges that Binance manipulated trading volumes, diverted customer funds, failed to restrict US customers from its platform, and misled investors regarding market surveillance controls. This legal action represents a significant step by the SEC in its extensive crackdown on the cryptocurrency industry this year.
In a statement, Binance expressed its cooperation with the SEC’s investigations and its efforts to address concerns and questions, including attempts to reach a negotiated settlement. The company affirmed its commitment to vigorously defend its platform.
These lawsuits have had a significant impact on the crypto markets, with Bitcoin experiencing a more than 5% decline on Monday, marking its largest daily drop since April 19. As of the latest update, Bitcoin is valued at $25,723, hovering near a two-month low.
Tony Sycamore, a market analyst at IG Markets, characterized the SEC suit as another setback for the crypto industry and global crypto exchanges.
Binance’s BNB cryptocurrency, the world’s fourth-largest, also suffered a 0.3% decline, reaching a near three-month low of $277 after a 9.2% plunge on Monday, its most substantial daily fall since November.
This SEC complaint adds to Binance’s growing list of legal challenges. In March, the company was sued by the US Commodity Futures Trading Commission (CFTC) for operating an alleged “illegal” exchange and a “sham” compliance program. CEO Zhao dismissed the CFTC’s claims as an “incomplete recitation of facts.”
https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.4.0.pdf
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