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SEC Intensifies Legal Battle with Binance.US Over Compliance Disputes

SEC's legal standoff with Binance.US continues

On March 5, the SEC took a significant step by filing a joint motion with the court, highlighting a crucial impasse with Binance.US. The heart of the dispute lies in the watchdog's allegation that Binance.US has fallen short of fulfilling its legal obligations, particularly regarding regulatory requests for information concerning customer assets.

Despite the SEC's claims of Binance.US's inspections being insufficient and the company's legal counsel's refusal to address vital questions, Binance.US maintains that it has adhered fully to all regulatory demands. This clash surfaces amid concerns over Binance.US's operational modifications without prior notifications, further complicating the regulatory landscape. 

Binance.US, defending its stance, asserts complete compliance, challenging the SEC's accusations and pointing towards the consequential "material damage" inflicted by these ongoing legal entanglements.

Regulatory concerns and Binance.US's defense

The SEC's scrutiny extends deep into the operational controls of Binance.US, with a particular focus on the autonomy over customer assets. Central to the regulator's concerns is the potential influence of entities outside the US, notably Binance Holdings Limited, over certain crypto wallets associated with Binance.US. 

The SEC is troubled by the possibility that Binance Holdings employees could access these funds through Amazon Web Services servers, which host Binance.US’s wallet software. This scenario raises questions about Binance.US’s exclusive control over private keys and customer assets. 

Moreover, the regulator seeks to ascertain the geographic distribution and compensation of Binance.US personnel, suspecting that some may be outside the US and paid by global Binance entities. Binance.US has countered these concerns in the joint filing, claiming full compliance with the SEC’s information requests.

Impact of SEC scrutiny on Binance.US operations

The legal challenges posed by the SEC have had a tangible impact on Binance.US, not just in the courtroom but also on its business operations and bottom line. According to the firm's filings, the exchange has experienced significant material damage, highlighted by the loss of banking partners and a decline in active users. 

This downturn forced Binance.US to make drastic operational adjustments, including a substantial reduction in its workforce. Binance.US's Chief Operating Officer, Christopher Blodgett, revealed in his testimony that the company has had to cut more than 200 staff members, equating to two-thirds of its total workforce, since June 2023. This move came as users withdrew $1 billion in assets from the exchange, a direct response to the SEC's stringent actions. 

Blodgett noted that the company's revenues "imploded," plummeting by more than 75% against a backdrop of rising operational and legal expenses, painting a stark picture of the challenges Binance.US faces amid ongoing regulatory scrutiny.