A Deep Dive into the Legal Battle between Binance and the SEC

A Deep Dive into the Legal Battle between Binance and the SEC

The ongoing legal dispute between Binance and the United States Securities and Exchange Commission (SEC) has reached new heights, with court documents revealing key details about the clash over evidence production and witness depositions. According to a joint status report filed on January 25, the SEC accuses BAM Trading Services, the parent company of Binance.US, of failing to fully comply with its information requests. The SEC seeks comprehensive insights into the custody and liquidity of assets, raising concerns about undisclosed control mechanisms over customer funds, reminiscent of the FTX scandal. However, BAM’s attorneys vehemently deny these allegations, asserting that the company has fulfilled all document production requirements outlined in the consent order and the expedited recovery request. They argue that the SEC’s methods, including the issuance of a Temporary Restraining Order (TRO) and the pursuit of expedited discovery, have imposed an undue burden on BAM.

The consent order, initially established to govern the SEC’s investigation, has become a significant point of contention in this legal battle. BAM Trading Services contends that the SEC is exceeding the agreed terms by expanding its probe beyond the safety and accounting of customer assets. They claim that the SEC is now delving into a broad examination of BAM’s custody policies and practices. This assertion adds another layer of complexity to an already intricate legal dispute. The regulator reportedly seeks evidence related to concerns about Binance.US potentially having a backdoor that could allow control over customer assets, similar to the situation with FTX. BAM’s attorneys assert that they have fully complied with the document production requirements specified in the consent order and expedited recovery request.

The joint status report also highlights pending deposition requests for BAM Trading Services’ former CEO and CFO, identified as Brian Shroder and Jasmine Lee. However, BAM Trading Services argues that additional depositions from current or former personnel are unnecessary. The company points to the SEC’s prior deposition of numerous witnesses during the expedited discovery phase, claiming that the regulator has already gathered sufficient information. According to BAM’s attorneys, the SEC’s motion fails to identify any evidence indicating that Shroder and Lee were involved in the day-to-day management details concerning the custody and transfer of customer assets at Binance.US. They further argue that BAM’s CEO and CFO possess no unique knowledge relevant to the limited topics outlined in the consent order’s expedited discovery provision. The attorneys also emphasize that BAM has offered several other witnesses who can provide deeper insights into BAM’s operations, including the Chief Information Security Officer, Erik Kellogg. They believe that the SEC is not entitled to any additional depositions from current or former BAM personnel, especially since multiple witnesses have already been deposed during expedited discovery.

BAM’s attorneys highlight the burden imposed by these depositions, asserting that it outweighs any potential benefit, and the discovery being sought is disproportionate to the needs outlined in the consent order. In September, the SEC and Binance reached an agreement on a protective motion, which requires confidential information to be filed under seal. Both parties submitted a joint motion pledging to file confidential and non-public information as protected materials, limiting access only to essential parties such as the judge, attorneys, plaintiffs, and defendants. Another issue of contention revolves around the potential examination of Binance co-founder Changpeng Zhao. Disagreements persist regarding the specifics of Zhao’s deposition, including its scope, timing, and location. Zhao resigned as CEO of Binance in November 2023, following a $4.3 billion settlement with U.S. regulators, and is currently free on a $175 million bond in the United States, facing a potential 18 months in prison.

As the legal battle between Binance and the SEC intensifies, both parties continue to present their arguments and counterarguments. The SEC’s allegations of noncompliance by BAM Trading Services and the subsequent response from BAM’s attorneys highlight the deep divide between the two sides. The disagreement over the scope of the consent order and the necessity of additional depositions further complicates matters. With pending issues surrounding the deposition of Changpeng Zhao and the burden imposed by these proceedings, the resolution of this legal battle is likely to be a prolonged and arduous process.

The legal battle between Binance and the SEC is at a critical juncture as the court documents shed light on the clash over evidence production and witness depositions. Both sides continue to present their arguments and counterarguments, with the SEC alleging noncompliance and BAM Trading Services vehemently denying these allegations. The dispute over the consent order and the necessity of additional depositions further adds complexity to the proceedings. As this legal battle continues, the outcome remains uncertain, and only time will tell how it will ultimately unfold.


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