The U.S. Securities and Exchange Commission (SEC) is reportedly investigating Binance.US for potential control of customer assets through a backdoor mechanism, similar to FTX, according to a report by the Wall Street Journal on November 27.
In June, the SEC filed a lawsuit against Binance and Binance.US, alleging the exchange's involvement in selling unregistered securities and accusing its founder of various fraudulent activities, including conflicts of interest and disregard for the law.
One specific allegation suggests that the exchange had discretionary control over customer assets, including transferring funds to the Swiss Sigma Chain, which was under the control of Binance's founder, Changpeng Zhao. During a federal court hearing on November 27, Binance.US lawyers argued that the SEC lacked evidence to support claims of asset misuse. They urged U.S. Magistrate Judge Zia Faruqui to consider halting the SEC's investigations into potential fraud.
Matthew Laroche, attorney for Binance.US, highlighted the escalating costs of litigation, noting that Binance.US's assets had dropped nearly 90% since the SEC's lawsuit and its user base had halved. This legal request coincides with Binance and Zhao's recent admission of violating U.S. anti-money laundering laws, leading to a $4.3 billion settlement with various U.S. regulatory bodies, excluding the SEC's fraud-related claims from its lawsuit in June.
Judge Faruqui, overseeing both the Binance case and the SEC lawsuit, expressed skepticism regarding the likelihood of Binance.US and Zhao misappropriating customer assets, citing the recent guilty pleas. Faruqui urged both parties to settle their dispute and requested an update by December 15. Additionally, Zhao is awaiting court permission to leave the U.S. temporarily before his sentencing in February, with the judge barring travel to the United Arab Emirates, his primary base, until a decision is made by the court following a U.S. government motion for review.
