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During a recent hearing, U.S. Magistrate Judge Zia Faruqui refrained from directing Binance.US, the American offshoot of the global cryptocurrency exchange Binance, to present its top-level executives for questioning. He also did not mandate the U.S. Securities and Exchange Commission (SEC) to limit its demands for documentation.
Instead, Judge Faruqui advised both parties to jointly address the discovery requests. He recommended that the SEC refine its information needs while still permitting it to question specific shareholders. This would help determine the safety of Binance.US's assets. He emphasized the importance of understanding the nature of the association between Binance.US and Ceffu, its service provider.
While he did not issue direct instructions, Judge Faruqui expressed a desire to maintain momentum in the proceedings. He highlighted his expectation for the crypto exchange to divulge more about its existing asset custody mechanism. He hinted at reservations regarding BAM, the parent company of Binance.US, fully controlling their assets.
The SEC's main concern revolves around Ceffu's close ties to Binance Holdings Limited, which could be tighter than a mutual agreement allows. This agreement mandates Binance.US and its parent entity, BAM Trading, to house all funds from American customers in wallets exclusively accessible by U.S. staff.
Matthew Martens, a lawyer from Wilmer Hale representing Binance.US, voiced his concerns about the breadth of the SEC's document requests. He suggested the specifics of the software operations are irrelevant. On the other hand, Jennifer Farer, an SEC attorney, pointed out challenges in sourcing information about the new wallet system used by Binance.US. This prompted a response from Martens, dismissing it as trivial.
Earlier in the year, the SEC initiated legal action against Binance and its founder, Changpeng Zhao, claiming they operated an unauthorized securities platform. The regulator's ongoing efforts focus on ensuring American customers' assets remain within the country.
A joint status report is anticipated by October 10, with a subsequent hearing scheduled for October 12.
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