SEC Faces Initial Hurdle in Bid for Access to Binance.US Software

The United States Securities and Exchange Commission (SEC) encountered a roadblock in its quest for swift access to Binance.US’s software during a recent legal proceeding. Judge Faruqui, presiding over the hearing on September 18, expressed his reluctance to grant the SEC’s request for immediate inspection, stating that he was “not inclined to allow the inspection at this time.”

The hearing revolved around the SEC’s motion to compel Binance to provide comprehensive information and enhance the accessibility of its executives for deposition—a contentious issue that had brewed tension between the two entities over the past week.

During the hearing, Judge Faruqui recommended an alternative approach to the SEC. He suggested that the SEC refine its discovery requests to be more specific and broaden its spectrum of witnesses for discussion. This recommendation emerged from a Bloomberg report dated September 18.

The SEC had consistently asserted its struggles in obtaining information from Binance.US since its legal action against the American branch of the cryptocurrency exchange, along with its international affiliate Binance Holdings Ltd, and CEO Changpeng “CZ” Zhao on June 5. The SEC alleged that these entities were involved in the sale of unregistered securities.

On September 15, the SEC accused Binance.US of noncooperation in the investigation. The regulator emphasized that Binance.US’s parent company, BAM Trading, had only produced 220 documents during the discovery process. Significantly, a substantial portion of these documents consisted of indecipherable screenshots and undocumented materials devoid of dates or signatures. Moreover, BAM had declined to produce crucial witnesses for deposition, agreeing solely to four depositions of witnesses it deemed appropriate.

Binance had previously characterized the SEC’s repeated discovery requests as “unduly burdensome.” Conversely, the SEC contended that Binance’s cooperation was inadequate, despite the exchange’s earlier agreement to a consent order regarding discovery in the SEC’s case involving unregistered securities operations and other allegations.

Judge Faruqui’s decision to deny the SEC immediate access to Binance.US’s software and other documentation marks a partial setback for the regulatory body in its ongoing legal battle against the cryptocurrency exchange. A key concern for the SEC is the custody of Binance.US customer assets, with the regulator asserting the necessity for a more thorough investigation into potential ties between Binance.US and the global arm of the exchange.

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