The legal dispute between Binance and U.S. regulators seems never-ending. Despite paying a hefty fine of $4.3 billion, this settlement was with the Department of Justice (DOJ), Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), Internal Revenue Service (IRS), and Commodity Futures Trading Commission (CFTC). However, the case with the Securities and Exchange Commission (SEC) is ongoing.
Regarding yesterday’s court order concerning Binance (BAM), Aiying summarized the key points for everyone: Since the SEC lawsuit is being heard in the U.S. District Court for the District of Columbia, the document released yesterday is a court order from this court.
This does not signify the end of the case but is merely to ensure that Binance can continue its operations during the litigation, minimizing the impact on customers and the market. Aiying considers this quite humane. The main content of the document essentially states: “Although I am suing you, during the proceedings, you are still allowed to:
- Authorize Investment of Company Assets: BAM can invest its funds through other companies or investment advisors, provided these are not affiliated with Binance. BAM must ensure these funds are not invested in Binance-related companies.
- Invest Customer Fiat Funds: BAM can invest a portion of the customer fiat funds currently held in BitGo into U.S. Treasuries, limited to 4-week Treasury bills issued by the U.S. Treasury Department (28 days). This investment must not involve Binance, and BAM must ensure there are sufficient funds for customer withdrawals at any time.
- Custody of Cryptocurrency: BAM can have its assets custodied and transferred to wallets provided by third-party custodians not affiliated with Binance. These wallets must have the customer asset control and new private keys managed by BAM Trading employees or third-party custodians located in the U.S. All transfers and withdrawals must be approved by BAM Trading and, when necessary, by third-party custodians. Binance entities cannot have control over these wallet assets.
Background Information
I. Key Entities Involved in the Lawsuit:
- Binance Holdings Limited: A Cayman Islands-registered limited liability company founded and owned by Changpeng Zhao. It has operated the Binance.com platform, an international crypto asset trading platform, since July 2017.
- BAM Trading Services Inc.: A Delaware-registered company and the operating entity of Binance.US, headquartered in Miami, Florida. It is a wholly-owned subsidiary of BAM Management. BAM Trading holds Money Transmitter Licensing (MTL) in 43 U.S. jurisdictions.
- BAM Management US Holdings Inc.: A Delaware-registered company and the parent company of BAM Trading and other related entities. When the Binance.US platform launched in 2019, BAM Management was wholly owned by BAM Management Company Limited, a Cayman Islands company, which in turn is wholly owned by CPZ Holdings Limited, a British Virgin Islands company owned and controlled by Changpeng Zhao.
II. SEC’s Lawsuit Timeline Against Binance
2022: Initial Investigation and Warning
The SEC began a preliminary investigation into Binance in 2022. Although specific details were not fully disclosed, the SEC’s main concerns included whether Binance violated U.S. securities laws, particularly by offering securities trading services without registration.
June 2023: SEC Formal Lawsuit
In June 2023, the SEC formally sued Binance and its founder Changpeng Zhao, alleging violations of securities laws, including operating as an unregistered securities exchange and broker-dealer, and violating anti-money laundering regulations. The lawsuit also classified certain crypto assets on the Binance platform (such as Binance Coin, BNB) as securities and demanded Binance cease trading and selling these securities.
July 2023: Response
Binance and Changpeng Zhao responded to the SEC lawsuit, denying all allegations and claiming the SEC’s lawsuit lacked legal basis. They asserted that Binance is committed to complying with all relevant laws and regulations and has taken measures to enhance compliance.
September 2023: Preliminary Rulings and Arbitration
During the lawsuit, the court issued preliminary rulings on issues such as whether the SEC could freeze Binance assets and whether Binance needed to provide more documents. Both parties also entered partial settlement and arbitration phases to discuss potential settlement options or specific resolutions to the case.
2024: Ongoing Case
As of 2024, the case is still ongoing. Depending on the case’s complexity and legal procedures, it may go through further trials, evidence presentation, and potential settlement or judgment.
Conclusion
Regarding the excitement seen on social media about yesterday’s court order allowing Binance to invest customer funds in U.S. Treasuries, I must say I don’t quite get the excitement. The document clearly states that the investment is limited to customer fiat funds, not virtual currency assets.
If it’s only fiat currency and just a portion of it, then this measure is merely to ensure the safe and effective management of customer fiat funds during the litigation period while meeting withdrawal demands. There’s no need for over-interpretation.
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