Crypto exchange Binance and its owner Changpeng Zhao (CZ) have been ordered by the US District Court to repatriate US customer funds and disclose their books. The court ruled in favor of the US Securities and Exchange Commission (SEC) in its case against Binance. This ruling affects both money and cryptocurrency balances held by customers of the US subsidiary, Binance.US. Customers must also hand over all relevant keys, passwords, and access to hardware, software, and cloud accounts. The SEC has sued Binance and CZ, alleging misappropriation of investor funds, operating as an unregistered exchange, and violating US securities laws. Customer funds were mixed with other assets and transferred to separate companies controlled by CZ. Binance has been accused of artificially inflating demand for certain crypto coins through wash trades. The defendants deny the allegations and the jurisdiction of the US judiciary.
Due to concerns that customer balances would dwindle during the ongoing court proceedings, the SEC obtained a comprehensive court order against CZ and Binance. They are now required to transfer customer funds back to the US and relinquish control over them. Only employees or independent third parties in the US may handle the funds. Customers are allowed to withdraw their funds, but strict restrictions apply to the use of other funds. Binance.US is allowed to make necessary expenses to keep the platform running but must disclose everything to the SEC. All crypto coins must be transferred to new wallets within 14 days to prevent CZ or Binance from secretly keeping key copies. CZ’s whereabouts are currently unknown.
The defendants are also prohibited from destroying or deleting any records, must open bank accounts and crypto wallets, and provide a copy of the list of all US customers and potential customers for the past four years. Binance must also explain each relevant transaction involving US customer balances. The SEC will have accelerated access to Binance’s files for its civil case.
This case, along with the lawsuit against Coinbase, is one of the SEC’s most significant proceedings against crypto exchanges. The authority classifies many cryptocurrencies and associated instruments as securities, subject to strict regulation. Companies cannot act simultaneously as an exchange, trader, and clearinghouse.
Binance has already fired a portion of its US workforce following the lawsuit. Additionally, Binance has been ordered by the Nigerian authority to halt all trading with Nigerians, denied a license in the Netherlands, and is retiring its never-used license in Cyprus. The US Commodity Futures Trading Commission filed a civil lawsuit against Binance in March, accusing the exchange of enabling terrorist financing and money laundering.
The SEC case against Binance is referred to as SEC v. Binance Holdings, Bam Trading Services, Bam Management US Holdings, et Changpeng Zhao and is currently pending in the United States District Court for the Capital District of Columbia.
