Key Points
- Binance.US faced operational disruptions due to legal challenges by the SEC.
- The lawsuit led to a significant reduction in workforce and revenue, and damaged banking relationships.
Binance.US, the American branch of the global cryptocurrency exchange Binance, encountered substantial operational issues following legal issues raised by the United States Securities and Exchange Commission (SEC).
The legal action, initiated in June of the previous year, leveled accusations against Binance, Binance.US and its founder, Changpeng Zhao, for activities such as selling unregistered securities, among other allegations. This lawsuit resulted in a significant decrease in the company’s workforce, with over 200 employees being laid off as the firm’s revenues took a sharp downturn.
Impact of the Lawsuit
Christopher Blodgett, the Chief Operating Officer of Binance.US, divulged the effects of the SEC’s lawsuit in a December deposition, which was later made public in a court filing on March 5. According to Blodgett, the lawsuit has gravely harmed the company’s relationships with banking institutions, making it difficult to carry out transactions in U.S. dollars.
He portrayed the company as being “radioactive” to banks, suggesting that any association with Binance.US could invite scrutiny from the SEC.
Further Consequences
The legal challenges have not only influenced the company’s staffing and banking relationships but also its market positioning. Blodgett disclosed that client assets on the platform decreased by about $1 billion shortly after the SEC’s legal action.
The loss of banking support and the subsequent inability to find new banking partners have been described as “effectively choking the business.” Before the lawsuit, Binance.US collaborated with over 20 market makers; this figure has since fallen to less than five, further indicating a loss of institutional trust.
In addition, the SEC’s accusations against Binance.US include engaging in wash trading to artificially inflate trading volumes and mixing user funds in an account linked to Zhao at Merit Peak.
The regulatory body also voiced concerns over the potential transfer of customer funds offshore, leading to a temporary restraining order (TRO) to freeze Binance.US’ assets. However, this TRO was dismissed by a judge the following day.
In a related event, Binance, Binance.US, and Zhao reached a settlement with the Department of Justice, Treasury, and the Commodity Futures Trading Commission in November, agreeing to pay $4.3 billion for violating money laundering and terrorism financing laws. Despite this settlement, the SEC is persisting with its investigation and maintaining its charges against the cryptocurrency exchange.
Zhao is due to face a sentencing hearing on April 3 after pleading guilty to a charge of money laundering, with a potential sentence of up to 18 months in prison.
