Binance has filed for a protective court order against the US Securities and Exchange Commission (SEC) in response to what it calls “overbroad” and “unduly burdensome” requests for communications and deposition testimony from its executives.
According to Reuters, the exchange claims that the SEC is demanding “over broad” and “unduly burdensome” information unrelated to customer assets, including its CEO and CFO, who know little about the custody issues central to the case. Binance’s legal battle with the SEC comes as the company faces increasing scrutiny from regulators worldwide, with its size and rapid growth raising concerns about its impact on the broader financial markets.
Binance’s legal battle with the SEC
Binance has been in the crosshairs of the SEC since June 2023, when it was hit with fraud charges. The two parties later reached an agreement that allowed Binance to continue operations in the US but with certain conditions. The suggested deal allows only Binance.US staff to access customer funds on the American exchange, while Binance Global leaders are barred from accessing private keys for any wallets or internal systems of Binance.US.
Binance.US is also prohibited from giving ownership or control of customer assets to anyone, including Binance and CEO Changpeng “CZ” Zhao. Additionally, the exchange must establish new crypto wallets with fresh private and administrative keys, and Binance and Binance.US must have separate wallets and management.
In its filing, Binance.US stated;
“BAM has worked in good faith, but the SEC has been steadfast in its belief that the Consent Order gives it carte blanche to investigate every aspect of BAM’s asset custody practices without any discernible limitation whatsoever.”
Binance’s rise to dominance and concerns about size
According to a recent Financial Times report, Binance`s early and rapid growth was fueled by regulatory uncertainty surrounding the new cryptocurrency phenomenon. CEO Zhao, who describes himself as “driven by freedom,” declared that he didn’t like “a lot of rules” and exploited the definitional controversy surrounding the crypto industry. He disregarded different countries’ interpretations of cryptocurrency, even though some may be legal.
As per the FT report, the collapse of its biggest rival, FTX, left Binance as the undisputed leader in digital assets, controlling more than half of the fast-evolving cryptocurrency market by the end of 2022.
According to experts, if Binance can weather the regulatory storm, it could become the go-to venue for trading crypto tokens, and Zhao could establish himself as the “acceptable face” of crypto. However, Binance’s size has made it a target for regulators and lawmakers seeking to prevent a crypto exchange from becoming “too big to fail.”
Concerns among evangelists and Binance`s response
Furthermore, as per FT, Binance’s size is not only a problem for regulators. Crypto evangelists fear that its success is an existential problem for an industry that champions decentralized finance where no one actor or entity holds too much sway. In the US alone, financial watchdogs have accused Binance of illegally serving American customers, inappropriately controlling clients’ assets, and disregarding compliance and anti-money laundering standards.
Another Forbes report alleges that Binance lawyers took a similar approach to Coinbase’s in responding to the SEC’s request for a temporary restraining order to freeze all of Binance’s US assets. They rejected the agency’s broad definition and application of “crypto-asset securities.”
Binance’s analysis focused on its Binance Coin (BNB), arguing that owners of that token “do not benefit from Binance’s profits and, to the extent they profit at all, it is the function of a decentralized and widely used blockchain that Binance does not control.”