- Binance.US will not have its assets frozen
- The judge ruling on the motion said yesterday that there was “absolutely no need” for a restraining order
- Binance.US will work with the SEC to find another way of protecting the funds
Binance.US will not have its assets frozen in a victory for the exchange over the Securities and Exchange Commission (SEC). During a hearing in Washington, US District Judge Amy Berman Jackson stated that there was “absolutely no need” for a freeze on the company assets, an act which Binance.US’s lawyers said would amount to a “death penalty”. The two sides have been told to work on another custody solution which satisfies them both to an acceptable extent.
SEC Concerned Over Future Movement of Funds
The SEC had sought to freeze all the assets owned by Binance.US after suing it for the unregistered sale of securities last Monday, as well as mishandling customer funds and providing misleading information to investors and regulators. According to a lawyer representing the SEC, the asset freeze was deemed necessary due to concerns that Binance might transfer customer assets to offshore locations.
In a previous memorandum, the SEC highlighted a pattern of behavior by Zhao and Binance, which involved the mingling of customer funds and the movement of funds beyond the jurisdiction of the court, either outside the United States or onto the blockchain. The memorandum revealed that Binance.US holds customer assets amounting to over $2.2 billion. It also characterized Zhao as a foreign national who has explicitly expressed his belief that he is not subject to the jurisdiction of the court.
Binance.US Proposes Third-party Custody Solution
Binance.US, which is actively contesting the SEC’s suit and asserting the safety of customer assets, argued during the hearing that a complete halt to fund flow would severely impact its operations and harm its customers. Binance.US’s attorney highlighted the exchange’s need to cover essential business expenses, such as rent, salaries, vendor payments, and software licensing as a reason for holding off from the asset freeze.
He also expressed concerns about an asset freeze leading to misinterpretation by banks, adding that the exchange was “not prepared to accept severe consequences only eight days into our case”.
In response to the SEC’s asset freeze request, Binance presented a compromise solution involving the transfer of US customer cryptoassets to new wallets. These wallets would possess new private keys and be exclusively controlled by officers based in the United States at Binance.US. In addition, Binance requested permission to continue paying employees and covering operational expenses, making a commitment that no assets would be transferred or payments made to benefit any Binance entity without the explicit order of a judge.
SEC Agrees to Work with Binance Over New Solution
In its compromise proposal submitted to the court, the SEC stated its desire to have customer assets repatriated customer to the United States in order to put them out of Zhao’s personal control but ensure customer redemptions continued. However, during the hearing, an SEC attorney expressed the regulator’s willingness to consider a narrowly-tailored exception to any asset freeze that would allow Binance.US to continue its operations while securing the funds.
The SEC further requested that Binance.US provide a detailed breakdown of its business expenses and professional fees, which would enable the SEC to better comprehend the requirements for sustaining the platform’s operations. As a result, the judge instructed Binance.US to submit a list of its business expenses by Wednesday, ensuring transparency and clarity regarding the financial obligations involved.
Judge Orders Compromise Agreement
Judge Jackson’s ruling, coming at the end of a gruelling and at times fractious day of argument and counter-argument, was the denial of an asset freeze in favour of allowing the two sides to find a compromise. She added the two parties were not far from finding a solution to safeguard the billions of dollars in customer funds while allowing the exchange to continue operating, referring them to a magistrate judge to work on a compromise agreement.
The news came as a relief to the entre crypto space as well as Binance.US itself, with signs that the SEC is at least willing to negotiate in some quarters rather than simply trying to just steamroller all crypto entities.