Partnered With:

Latest development in the Binance lawsuit: US judge denies asset freeze request, Binance may be able to reach a settlement with the SEC.

Read this article in 16 Minutes

Judge denies temporary restraining order to freeze Binance.US assets; Binance proposes compromise settlement.

On the morning of June 14th Beijing time, a hearing was held in the case of the SEC's application to freeze Binance.US assets in the District Court of Columbia. During the hearing, the federal judge overseeing the SEC's case against Binance (SEC) and Binance.US refused to issue a temporary restraining order freezing the exchange's assets on its US trading platform, allowing Binance to continue its operations in the US and engage in further communication with regulatory agencies.

According to Judge Amy Berman Jackson of the District Court for the District of Columbia, "there is absolutely no need" to issue a restraining order if the parties can reach an agreement on restrictions. The judge also ordered Binance.US to provide a list of its business expenses to the court and requested that the parties continue to negotiate.

Key Points of the Hearing

Last week, the US Securities and Exchange Commission (SEC) sued cryptocurrency exchange Binance.US and its founder Changpeng Zhao "CZ", accusing them of operating as an unregistered securities exchange, broker, and clearing agency. The regulatory agency also accused Binance of allegedly mixing large amounts of funds, allowing Canadian citizen Changpeng Zhao, who resides in the United Arab Emirates, to access Binance.US customer assets.

After filing a lawsuit, the US Securities and Exchange Commission (SEC) filed a motion for a temporary restraining order with the court. Binance refuted the allegations in response to the motion, arguing that the SEC has not ultimately proven that they have listed any securities products and stating that the regulatory agency has not provided any evidence to support the emergency motion.

1. The judge refused to issue a temporary restraining order to freeze Binance.US assets

During the trial, when asked whether any Binance.US customer funds had actually left the United States, Judge Amy Berman Jackson seemed dissatisfied with the SEC lawyer's answer and even frustrated, as several lawyers from the US Securities and Exchange Commission had previously expressed concern that the Binance global trading platform controlled enough private keys to transfer funds. Amy Berman Jackson's question was also very direct: "I want to know if it is happening, and please note that I have asked each of you this question."

Earlier in the day, Judge Amy Berman Jackson hinted that she may be inclined to impose some degree of restrictions on users accessing assets on Binance and Binance.US, but not a complete injunction. In addition, Judge Amy Berman Jackson ordered Binance to further coordinate with the U.S. Securities and Exchange Commission on the injunction and ordered the SEC to use "other materials" instead of the injunction.

SEC lawyer Jennifer Farer told the judge on Tuesday that "we are open to continuing operations." Representatives from BinanceUS said they mainly want to obtain normal operating expenses and "do not want to accept the death penalty represented by asset freezes." The SEC lawyer said that Binance.US also told the US Securities and Exchange Commission that it may stop operating in the United States, which prompted the need for an emergency freeze order.

Judge Amy Berman Jackson said, "Ultimately, the differences between the two sides are not great. If they can reach an agreement, it will give everyone time to properly organize the details of the case." She also stated that she will refer them to a magistrate judge to reach a settlement agreement. If an agreement is reached, there will no longer be a need to rule on the SEC's temporary restraining order request.

2.Binance proposed a compromise and solution

Binance.US lawyers have stated that the exchange needs to have the ability to pay for regular business expenses such as rent, salaries, suppliers, and software licenses. "The area that is shocking to us is asset freezing, which will be misunderstood by banks," the judge agreed. "Completely shutting it down would not only have a significant impact on the company but also on the entire digital asset market," she said at the hearing.

In order to avoid the freeze of the total assets of cryptocurrency trading platforms, Binance proposed a compromise solution in response to the SEC's asset freeze request, which includes transferring the cryptocurrency assets of US customers to new wallets with new private keys, which will be controlled solely by Binance.US.

As part of its proposal, the exchange also requested to continue paying employee salaries and operating costs, while promising not to transfer any assets or pay any funds to benefit any Binance entity without a court order. The US Securities and Exchange Commission has requested in a compromise proposal submitted to the court that Binance repatriate customer assets to the US, where these assets will be controlled by entities beyond the control of CZ and can be used to process redemptions for customers.

About the dispute between securities and commodities

As the hearing was about to begin, Judge Amy Berman Jackson asked SEC lawyer to distinguish between "cryptocurrencies" and "cryptocurrency securities". SEC lawyer Matthew Scarlato told the judge that the regulatory agency provided several examples of cryptocurrencies it believed to be securities in a broader complaint, but also reserved the right to evaluate the remaining tokens on the exchange later.

Continuing, Judge Amy Berman Jackson delved into the fundamental issue at the core of the lawsuit: what makes a cryptocurrency a security, and if it is not a security, is it still a commodity? Despite posing some basic questions on this issue, Judge Amy Berman Jackson was not satisfied with the answers.

Judge Amy Berman Jackson also asked the US Securities and Exchange Commission (and later asked Binance) whether other cryptocurrencies are commodities: "What are those things that are not recognized as securities by the US Securities and Exchange Commission?" Obviously, this is a core issue that has plagued the cryptocurrency industry for many years.

Judge Amy Berman Jackson further asked Binance.US representative lawyer Matthew Martens whether BNB is a commodity, as the U.S. Securities and Exchange Commission has deemed it a security. Matthew Martens' response was very concise and affirmative: "BNB is a cryptocurrency asset."

Previously, BlockBeats conducted in-depth reporting on the dispute between CFTC and SEC over the definition and regulatory authority of cryptocurrency assets. The struggle for regulatory authority over the definition of cryptocurrency assets may be influenced to some extent by the regulatory agencies' need to balance their budget.

After the SEC accused Coinbase of violating securities laws on June 5th, the US House Agriculture Committee held a dual-panel hearing to discuss the regulation of the cryptocurrency spot market. During the hearing, the SEC became the target of everyone's criticism. CFTC Chairman Behnam repeatedly suggested that only by allowing the CFTC to regulate cryptocurrencies as commodities can the regulatory vacuum in the industry be addressed.

CFTC and SEC have had multiple clashes over cryptocurrency regulation. In August 2021, when SEC called for an expansion of regulatory oversight over the cryptocurrency industry, Brian Quintenz, then-chairman of CFTC, tweeted that cryptocurrencies are commodities and should be regulated by CFTC instead of SEC. He wrote in the tweet, "SEC has no jurisdiction over purely commodities or their trading venues, whether those commodities are wheat, gold, oil, or crypto assets." Subsequently, the US House Agriculture Committee also supported CFTC, stating that cryptocurrencies are beyond the scope of SEC's jurisdiction.

After Gary Gensler took over the SEC, the regulation of cryptocurrencies became more aggressive. In August 2021, Gensler, as the chairman of the SEC, spoke at the Aspen Security Forum, stating that many areas of cryptocurrencies are subject to securities laws and need to be regulated by the SEC. Based on this, Gensler's "enforcement team" began a series of investigations into different tokens and provided complex explanations of "investment contracts" based on the Howey Test, attempting to push the narrative that "cryptocurrencies are securities" into the mainstream. On November 8, 2022, the US District Court in New Hampshire ruled in favor of the SEC in the case of accusing LBRY of issuing unregistered securities, determining that the cryptocurrency LBC issued by LBRY is a security.

Related reading: "Why does everyone want to regulate Crypto?"

Binance.US has hired former SEC Enforcement Division Co-Director as a lawyer, possibly to respond to potential lawsuits from the US Department of Justice

In preparation for allegations of illegal securities trading, Binance.US has hired four lawyers from the well-known New York-based law firm Milbank, including George Canellos, the global head of Milbank's litigation and arbitration group and a partner in the firm's New York office.

George Canellos has attracted attention from all sides since his name appeared. Previously, BlockBeats conducted a detailed exploration and sorting of George Canellos' personal resume and handled cases.

Canellos has served as Acting Director and Deputy Director of the Enforcement Division, and ultimately as Co-Director of the SEC's Enforcement Division, where he oversaw the civil enforcement work of approximately 1,300 SEC personnel across 12 offices nationwide - including investigations, prosecutions, and trials - most notably in two of the most significant insider trading cases in U.S. financial history. John Reed Stark, former Chief of the SEC's Office of Internet Enforcement, praised Canellos in a tweet, saying, "Canellos has a rare and very special background combination - having served as both an SEC prosecutor and a DOJ prosecutor, like Liam Neeson meets Perry Mason."

It can be said that Canellos has supervised many landmark law enforcement cases, and his appearance seems to confirm John Reed Star's personal speculation to some extent. Previously, former director of the US SEC Internet Enforcement Office, John Reed Stark, tweeted speculating that the US Department of Justice may file a criminal indictment related to Binance.

John believes that the complaints from CFTC and SEC read more like criminal indictments, filled with charges of fraud, deception, obstruction of justice, and money laundering. He also thinks that neither CFTC nor SEC cases have focused on money laundering, "which may be a space reserved for criminal prosecution related to the US Department of Justice and Binance." However, it should be noted that this is John Reed Star's personal speculation. He has always held an extreme hostile attitude towards cryptocurrency companies and the industry, including accusing Tether of being a domino that is about to fall.

Reference Information:

Coindesk: https://www.coindesk.com/policy/2023/06/13/us-judge-rebuffs-sec-request-for-binanceus-asset-freeze-for-now/

The Block: https://www.theblock.co/post/234511/binance-us-sec-agree-to-work-out-deal-to-avoid-full-asset-freeze-bloomberg?utm_source=twitter&utm_medium=social

Bloomberg: https://www.bloomberg.com/news/articles/2023-06-13/binance-us-sec-not-far-apart-on-deal-avoiding-full-asset-freeze?leadSource=uverify%20wall#xj4y7vzkg