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SEC granted emergency restraining order to freeze, repatriate Binance.US assets

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(Kitco News) - The U.S. Securities and Exchange Commission (SEC) is continuing to hammer the world’s largest crypto exchange, submitting a court filing for an emergency restraining order to freeze the assets of Binance.US the day after filing a massive 13-charge lawsuit against Binance.

“The Securities and Exchange Commission today filed an emergency action application seeking a temporary restraining order freezing assets, directing defendants to repatriate assets held for the benefit of customers of the Binance.US crypto trading platform, and seeking other emergency relief against Binance Holdings Limited, BAM Trading Services Inc., BAM Management US Holdings, Inc., and their founder, Changpeng Zhao,” the SEC wrote in their announcement.

The regulator said the goal of the order is “to ensure that Binance.US customers’ assets are protected and remain in the United States through the resolution of the SEC’s pending litigation of this matter.”

The SEC’s emergency motion asks that the court grant them “(1) an order to show cause why a preliminary injunction should not be granted as to the defendants; (2) an order freezing the assets of BAM Management; (3) an order directing the defendants to repatriate assets held for the benefit of BAM Trading's or BAM Management’s (together “BAM”) customers; (4) an order for other relief concerning the custody and control of BAM customers’ assets; (5) an order prohibiting the destruction of records by the defendants; (6) an order requiring sworn accountings of certain assets from the defendants; (7) an order authorizing expedited discovery from the defendants; and (8) an order granting alternate means of service.”

Later on Tuesday, a filing from the United States District Court for the District Of Columbia showed that the court had agreed to grant the SEC’s demands.

“The Commission has made a sufficient and proper showing in support of the relief granted herein,” the court wrote, “by setting forth evidence from which an inference of a violation can be drawn and showing a likelihood that the Commission will prevail at trial on the merits and that the Defendants have engaged in and, unless temporarily restrained and enjoined by order of this Court, will continue to engage in acts, practices, and courses of business constituting violations” of the Securities Act and the Exchange Act.

By granting the order, the court has effectively frozen the assets of Binance entities BAM Management and BAM Trading and prevented them from transferring the assets except to recognized third-party custodians. It also requires Binance to repatriate any assets held outside of the United States on behalf of Binance.US customers.

Binance now has five days to ensure that all access to Binance.US customers’ funds is limited to the U.S. entity, and 30 days to transfer to Binance.US any assets that it holds in offshore entities on behalf of U.S. customers.

In the wake of the filing, Binance announced on Twitter that while the court order prohibits Binance.US from transferring funds to other entities, it does not impact the ability of Binance.US customers to access or withdraw their own funds.

On June 5, the SEC filed a lawsuit against Binance and its CEO, Changpeng Zhao (CZ) charging them with operating an illegal platform in the U.S. and misusing customer funds.

“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said SEC Chair Gary Gensler. “As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied.”

The SEC has alleged that customer funds were illegally diverted to Sigma Chain, a trading entity controlled by Zhao, and used to engage in fraudulent trades that inflated Binance’s true trading volume.

The filing also says that Binance concealed the fact that it commingled billions of dollars in customer assets that were sent to Merit Peak, another third-party entity owned by Zhao.

By

Ernest Hoffman

For Kitco News

Contact ehoffman@kitco.com
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