In a recent court development, Binance, the world’s largest cryptocurrency exchange, has been granted permission to continue its operations within the United States as it faces fraud charges brought by the U.S. Securities and Exchange Commission (SEC).
Under a consent order filed on Saturday, the defendants involved in the lawsuit, which was initiated on June 5, have agreed to repatriate all assets held for the benefit of Binance’s U.S. trading customers. This agreement comes after the SEC accused Binance of violating U.S. law by operating as an unregistered securities exchange. Similar charges were also filed against Coinbase, another leading cryptocurrency exchange, around the same time.
Binance’s Diversion and Concealment of Customer Funds
In addition to the allegations of operating as an unregistered securities exchange, Binance and its CEO, Changpeng Zhao, face further charges of diverting customer funds. It is claimed that they concealed the fact that billions of dollars in investor assets were being mixed together and sent to a third party owned by Zhao himself.
As a response to these charges, the SEC sought to freeze the assets of Binance’s U.S. platform. The consent order, signed by Judge Amy Berman Jackson of the Washington, D.C. federal court, imposes certain restrictions on the defendants. It prevents them from using corporate assets for anything other than regular business expenses, mandates SEC oversight on expenditure, and prohibits the destruction of records, according to a statement released by the agency.
Under the terms of the consent order, Binance is required to establish new digital wallets specifically for its U.S. customers and transfer their assets to these wallets within a two-week timeframe.
The cryptocurrency industry has experienced its fair share of scandals and market fluctuations, and this recent SEC crackdown is seen by industry leaders as an indication that U.S. regulators are skeptical about the place of cryptocurrency within the traditional financial system. In August 2021, SEC Chair Gary Gensler expressed concerns about the lack of investor protection in crypto markets, referring to them as resembling the “Wild West.”
Last year’s collapse in crypto prices, coupled with the demise of notable cryptocurrency companies such as FTX, resulted in significant losses for investors, further highlighting the need for regulatory oversight.
As Binance continues its legal battle against the SEC, this court agreement allows the exchange to maintain its U.S. operations, albeit under the close scrutiny of the regulatory body. The outcome of this case will undoubtedly shape the future of cryptocurrency regulation and the involvement of exchanges within the United States.
