BinanceUS responds to fraud, market manipulation, asset safeguarding claims

Binance.US claims in a new court filing that it has “made significant efforts” to cooperate with a Securities and Exchange Commission investigation since December 2020.

That timeline tracks with the SEC's own version of when it began reaching out to Binance.US for information. But the agency argues that Binance.US has not provided “reassuring” answers regarding where customer assets are stored.

Monday’s filing by Binance.US is the U.S. affiliate’s first pushback to claims by the SEC that it and its parent company redirected over $12 billion in customer assets to funds controlled by owner and founder Changpeng ‘CZ’ Zhao, in an echo of similar allegations raised against Sam Bankman-Fried, FTX, and Alameda Research. Binance.US made the filing as part of its argument against an SEC request for a temporary restraining order on the company, also known as BAM Trading.

Responding to the SEC's allegations that it commingles customer assets with funds controlled by Zhao responded that it "maintains its customers’ fiat currency in segregated accounts maintained with its banking partners, separate from any corporate funds."

The company acknowledged that Zhao owns BAM Trading's bank account but claims he does not have signatory authority over the account. The SEC argues that Zhao is one of the people with control over those bank accounts and says it's proof of a lack of separation between Binance and Binance.US, both of which he's believed to own a controlling stake in.

In its filings last week, the SEC also cited a non-public auditor report from last year that could not verify if Binance.US had enough assets to pay out customers withdrawing from their accounts. It used that as part of its argument for a temporary restraining order on the U.S. affiliate of Binance. 

The filing pushing back on SEC claims comes in preparation for tomorrow’s hearing on a temporary restraining order on Binance.US requested by the SEC that would effectively freeze the U.S. affiliate’s assets except for customer withdrawals.  

Lawyers representing Binance's holding company and Zhao argued that a temporary restraining order against Binance.US freezing asset transfers is unnecessary, claiming that the two have agreed not to take money out of the U.S. affiliate.

"The SEC’s position is unreasonable and illogical because Defendants have already agreed to not make any such transfers
and there is no compelling basis to also require a total asset freeze for 10 days, which would be disastrous for BAM’s business," lawyers representing the company in the U.S. District Court of the District of Columbia write in Monday's filing. They argue that the company volunteering to preclude transfers from Binance.US to Binance and Zhao renders the temporary restraining order moot. 

The lawyers representing Binance.US in court include George Canellos, a former prosecutor with the Southern District of New York as well as a former acting director of the SEC's Enforcement Division, and William McLucas, a former longtime chief of that division. 

In addition to the temporary restraining order on Binance.US, the SEC also wants Binance and Binance.US to provide a full accounting of their financial health, something that Binance has promised to deliver publicly for years.

UPDATE: Updated with additional detail from filing.