The SEC accuses Binance.US of failing to fully comply with the requirements to submit customer cryptocurrency asset custody and control-related documents and other information.

By Mary Liu, BitpushNews

The legal battle between Binance and U.S. regulators is escalating, with the SEC fiercely criticizing Binance.US in its latest court filing, alleging non-cooperation.

Documents submitted to the court on Monday show that the U.S. Securities and Exchange Commission (SEC) has requested an investigation into Binance.US's assets, accusing the company of failing to fully comply with the requirements to submit customer cryptocurrency asset custody and control-related documents and other information.

However, the entity behind Binance US, BAM Trading, claims it is unable to provide this information.

In the filing, BAM Trading's lawyers stated that the SEC's requests were "overly broad" and caused too much "inconvenience" for the exchange. The lawyers wrote, "BAM opposes the SEC's requests because they are vague, ambiguous, overly broad, lack specificity, or are unduly burdensome."

The SEC had previously requested BAM to provide a series of documents, including records of the company's handling of customer assets, company reserve proofs, and statements of overall financial condition. The regulatory agency claimed that these requests were intentionally ignored by Binance.

Binance.US's Relationship with Ceffu?

One of the requests made by the SEC is related to the exchange's alleged use of a custody service called CEFFU to transfer funds from U.S. customers to entities abroad. In other words, the question is whether Binance.US is a client of the cryptocurrency custody provider Ceffu.

The SEC's concern is about allowing foreign entities to control assets of U.S. customers. The agency stated in court documents, "Binance has made inconsistent representations on key facts, has slowly produced a small portion of documents and information, and has blocked an entire category of information that could expose unreliable vulnerabilities in its customer asset custody."

Furthermore, given the changes in personnel at Binance.US (including its president), the SEC emphasized the urgency of expediting the discovery of evidence, believing that they may hold crucial information regarding asset custody and availability.

However, BAM's lawyers responded that these requests were "overly burdensome" and forced BAM to incur "substantial costs." Additionally, the lawyers argued that some documents were either not in the exchange's possession or were not within the scope of the SEC's investigation.

Companies under federal investigation often refuse requests for information, citing that the information is overly broad or burdensome for their employees. While delays are not always successful, they can lead to significant delays in the case.

"Not a Binance Entity"

As previously reported, Ceffu was launched in December 2021, initially named Binance Custody, and rebranded as Ceffu in February 2023.

In documents submitted and unsealed in August and September, the SEC stated that Binance.US's use of Ceffu may have violated previous agreements aimed at ensuring that only U.S. local users could access funds. The agreement prohibited Binance.US from using any other entity associated with Binance or Zhao Changpeng for custody, but it could use third-party providers based in the U.S.

In legal documents submitted by Binance.US on September 12, the exchange stated that the SEC's concerns were "baseless" because the wallet provider cannot control customer funds, and Ceffu is simply the market name for wallet custody software developed by Binance Holdings and subsequently authorized for use by the U.S. division.

In a post on Friday, Ceffu stated that it excludes the U.S. from its operations and "strongly opposes" the SEC's claim that it provides third-party "wallet custody software and support services" to Binance.US.

Ambiguous Information

According to information published on the Binance website, Ceffu is referred to as Bifinity UAB, and Bifinity, registered in Lithuania (allowing it to provide cryptocurrency trading and wallet services), is still listed on the Binance website and under various regulatory licensing entries obtained by Binance.

In a document submitted by the SEC in November 2022, it was stated that Binance CEO Zhao Changpeng was the sole shareholder of Bifinity, and two of the three board members of Bifinity also worked for Binance. In a document submitted by the SEC in June, it was stated that the company ultimately still belonged to Zhao, so the relationship between Ceffu and Binance remains confusing.

Declining Trading Volume for Binance.US

As the struggle between Binance and U.S. regulators intensifies, the trading volume of Binance.US is declining.

Data from CCData shows that in August, Binance.US's monthly trading volume decreased by 98% compared to January 2022, reaching just over $286 million. From early September to September 15, Binance.US's trading volume was $115.7 million, indicating a likely further decline in trading volume for September.

According to data from the tracking company CoinGecko, as of Monday, Binance.US's daily trading volume is approximately $10.5 million. In comparison, the daily trading volume of the largest cryptocurrency exchange in the U.S., Coinbase Global Inc., is $948 million.

Most of the decline occurred since March, when Binance was hit with charges by the U.S. Commodity Futures Trading Commission (CFTC). In June, the SEC sued Binance.US, Binance, and Zhao Changpeng, alleging a series of violations, including "misrepresenting the control and supervision of trading on the Binance.US platform."

Under regulatory scrutiny, several banking partners severed ties with Binance.US, and there were significant changes in the management of Binance.US, with CEO Brian Shroder resigning last week, when the company also laid off a third of its staff.

Regarding the document dispute, Judge Zia Faruqui of the District Court for the District of Columbia encouraged Binance.US and the SEC to cooperate during a hearing, stating, "I need all of you to work hard to de-escalate the dispute, forget the past, and try to present to me some issues that you think can be resolved."

The judge stated that Binance needs to provide more information about its current custody solutions: "I think we need more than what we have now," and added that he is "not very confident that BAM has complete control over its assets."

If the court approves the SEC's motion for enforcement at the October hearing, it would lead to a more rigorous review of Binance's operations and potential violations of securities laws. Binance may have to disclose sensitive information, including documents related to its wallet custody software and its relationship with entities such as Binance Holdings Limited (BHL), and any violations discovered during the investigation could result in penalties, fines, and further legal action.

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