Binance.US Under SEC Radar: Compliance Issues Arise Over Customer Asset Management

• SEC scrutiny reveals potential compliance gaps in Binance.US’s management of customer assets.
• Operational strains from the lawsuit have led to significant layoffs and economic challenges for Binance.US.

The U.S. Securities and Exchange Commission (SEC) has cast a spotlight on Binance.US, the American arm of the global cryptocurrency exchange Binance, over concerns related to the management and safeguarding of customer assets.

This scrutiny emerges amidst allegations that Binance Holdings Ltd., along with its U.S. counterpart, BAM Trading Services operating as Binance.US, might be breaching U.S. securities laws.

The SEC’s lawsuit, which was initiated last year, particularly probes into the degree of influence that Binance’s international employees might wield over the funds of American clients, hinting at a potential violation of regulatory norms, as formerly reported by Crypto News Flash.

Binance Compliance Challenges and Legal Scrutiny

A key focus of the SEC’s investigation is to determine whether Binance.US can autonomously manage its operations, especially in terms of customer asset security. A consent order, signed in the wake of the lawsuit by Judge Amy Berman Jackson, mandates the exchange to verify its control over its clients’ assets.

This order has kickstarted a period of expedited discovery aimed at evaluating the firm’s compliance with these directives. However, the SEC has encountered hurdles in acquiring comprehensive disclosures from Binance.US, which suggests a possible hesitancy or incapacity on the part of the company’s staff to provide the required information or to adequately address inquiries regarding their asset management and control mechanisms.

Despite Binance’s affirmations of adhering to the consent order’s requirements, the SEC remains skeptical about the claimed independence of Binance.US concerning customer asset management. A particular point of contention is the potential access that employees of Binance Holdings might have to these assets, notably through the management of Amazon Web Services servers that host Binance.US’s wallet software.

The SEC’s ongoing investigation has revealed potential discrepancies in the claimed exclusive control by Binance.US over its private keys and consequently, its customer assets.

In retaliation, Binance.US has staunchly defended its compliance measures, underscoring its commitment to cooperating with document requests and substantiating its dominion over customer assets.

The exchange challenges the SEC’s persistent demands for information, deeming them as exceeding the consent order’s stipulations. Furthermore, the exchange refutes any claims suggesting inadequate oversight of asset transfers and mismanagement of customer funds.

Operational Impact and Future Prospects

The legal tussle with the SEC has not been without its repercussions for Binance.US. As noted by the company’s COO, Christopher Blodgett, the lawsuit has dealt a “near-mortal blow” to the firm’s operations.

NEW: In court filings released today, Binance US COO Christopher Blodgett said in a December deposition that the company has laid off 200 people since June as a result of the SEC's lawsuit.

It had previously been reported that 100 people had been laid off pic.twitter.com/EYYNJYiBrR

— Leo Schwartz (@leomschwartz) March 5, 2024

This strife has precipitated the layoff of over 200 employees since June, marking a significant escalation from previously reported figures.

Blodgett elucidates the strain inflicted by the lawsuit in three main domains: the workforce, public trust, and financial stability, highlighting the substantial severance and termination-related expenditures borne by the company.