Binance Escapes Asset Freeze In Exchange For A Raft Of Restrictions

The U.S. subsidiary of cryptocurrency exchange Binance has avoided an asset freeze that would have made it impossible to do business, but it has agreed to burdensome terms to keep operating during a civil case brought by the Securities and Exchange Commission that charged the company with evading “critical regulatory oversight.”

Under a consent order signed on Saturday, Binance.US has agreed to repatriate assets held for the benefit of domestic customers and keep them under control of domestic personnel, specifically ensuring that parent Binance Holdings and CEO Changpeng Zhao do not have access to such funds; limit company spending to regular business expenses; and submit to expedited discovery regarding the custody and security of client assets. Binance personnel were also ordered not to destroy documents or other evidence relevant to the consent order, among other requirements.

The SEC did not specify the amount to be repatriated and did not respond to an emailed request for more information. In the agency’s announcement of the order, Gurbir S. Grewal, director of the enforcement division, was quoted as saying “Given that Changpeng Zhao and Binance have control of the platforms’ customers’ assets and have been able to commingle customer assets or divert customer assets as they please, as we have alleged, these prohibitions are essential to protecting investor assets.”

A Binance spokesperson said by email, “User funds have been and always will be safe and secure on all Binance-affiliated platforms.” The spokesperson, who asked not to be further identified, also said, “Although we maintain that the SEC’s request for emergency relief was entirely unwarranted, we are pleased that the disagreement over this request was resolved on mutually acceptable terms.”

In a June 6 motion asking the federal court for the District of Columbia to freeze the American subsidiary’s funds, the SEC said it was seeking to ensure the safety of customer assets at the U.S. operations given the companies’ “years of violative conduct, disregard of the laws of the United States, evasion of regulatory oversight, and open questions about various financial transfers and the custody and control of Customer Assets.”

Judge Amy Berman Jackson urged the SEC to negotiate with the company in a June 13 hearing rather than insisting its assets be frozen. But while the consent order gives Binance.US the ability to keep operating, the unit is likely to face a long court battle over what the SEC described in a 13-count complaint on June 5 as a “blatant disregard of the federal securities laws” that allowed the parent company and Zhao to have “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”

Along with legal expenses and potential reputational damage arising from the suit and a similar action by the Commodities and Futures Trading Commission (CFTC) in March, Binance may face criminal charges from the Department of Justice (DOJ) in relation to its U.S. activities. “I would expect the DOJ to play along at some point,” Austin Campbell, an adjunct professor at Columbia Business School and managing partner of blockchain-focused Zero Knowledge Consulting, told Forbes earlier this week. “It’s just a question of when.”

Binance coin (BNB), the exchange’s cryptocurrency, has lost about 19% of its value since the SEC complaint was filed, falling to about $244 on Saturday morning in New York. That is down from its May 2021 record of $686.31, according to data provider CoinGecko.

The Binance suit comes as part of a broad series of U.S. actions to crack down on the digital assets industry, led by the SEC but also including the CFTC, Federal Reserve and the White House.