Binance US in the crosshairs: SEC investigates FTX-style fraud

Binance US

IMPORTANT POINTS:

  • SEC investigates Binance.US for possible FTX-style fraud.
  • Binance and CZ agreed to plead guilty in a separate money laundering case.
  • Binance.US and the SEC are asked to resolve their dispute by December 15.

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Binance.US attorney Matthew Laroche has asked a federal judge to consider ending the SEC investigation into possible fraud.

The U.S. Securities and Exchange Commission (SEC) is still seeking evidence that Binance.US had a backdoor to potentially control customer assets in a similar manner to FTX, according to a Nov. 27 Wall Street Journal report.

SEC vs Binance

In June, the SEC filed a lawsuit against Binance and Binance.US, alleging that the exchange was involved in the sale of unregistered securities and accused Binance and its founder of participating in a complex conspiracy involving fraud, conflicts of interest, misconduct of disclosure and deliberate disregard for the law.

One of the allegations was that the exchange diverted client assets at its discretion, including sending money to the Swiss-based Sigma chain that was under Zhao’s control.

During a Nov. 27 hearing in federal court, lawyers for Binance.US argued that the securities regulator has no evidence that the assets were misused, asking US Magistrate Judge Zia Faruqui to consider ceasing the securities regulator’s investigation for possible fraud.

Binance.US attorney Matthew Laroche also cited the rising costs of the lawsuit, noting that Binance.US’s assets have dropped nearly 90% and its user base has halved since the filing. SEC filed the lawsuit.

The request came as Binance and CZ agreed to plead guilty to violating US anti-money laundering laws as part of a $4.3 billion settlement with the US Department of Justice, Treasury and the US Trade Commission. Commodity Futures (CFTC) last week.

However, the US Department of Justice case did not include any of the SEC’s fraud-related allegations stemming from its lawsuit with the cryptocurrency exchange in June.

Binance.US, SEC Ask to Resolve Dispute

Judge Faruqui, who is presiding over the Binance and SEC case, apparently said the guilty pleas make it less likely that Binance.US and CZ misappropriated customer assets.

“At some point, I have to take a leap of faith and say enough is enough,” Faruqui told SEC lawyers.

Faruqui has asked Binance.US and the SEC to resolve the dispute and update him by December 15.

Meanwhile, CZ is awaiting a judicial review to find out if he can leave the US now and return two weeks before his sentencing date, scheduled for sometime in February.

The judge ordered that CZ would not be allowed to travel to the United Arab Emirates — where CZ is primarily based — until a court rules on a U.S. government motion for review.

CZ could face up to 18 months in prison under federal sentencing guidelines.