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The Saga Continues: SEC Still Pursuing Binance.US and CZ in Seattle

Despite the recent agreement between Binance and several U.S. authorities, the SEC is still targeting Binance.US for alleged FTX-style fraud.

One might have assumed that the recent agreement between Binance and the U.S. Justice Department, Treasury Department and the Commodity Futures Trading Commission had put an end to all of the exchange's compliance issues and allowed a fresh start. Binance’s new CEO, Richard Teng, took to the crypto exchange’s blog to reassure clients that they "maintain 1:1 backing for every user asset" and that "assets are protected."

However, it appears that the SEC is still investigating Binance.US and hoping to find potential FTX-style fraud. The lawsuit against Binance and Binance.US was filed by the SEC this summer. 13 charges have been made against Binance and its affiliates, including the operation of unregistered exchanges, and misrepresenting trading controls and oversight on the Binance.US platform. 

“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” - said SEC Chair Gary Gensler at the time.

On November 27, Binance.US attorney Matthew Laroche asked U.S. Magistrate Judge Zia Faruqui to consider ceasing the investigation for potential fraud, stressing that “the SEC has no evidence that assets have been misused in any way.” The attorney also tried to play on sympathy, claiming that the lawsuit negatively impacted the exchange, including the loss of half of its monthly users, The Wall Street Journal reported.  The Judge agreed that, taking into account guilty pleas and CZ’s resignation, it is less likely that he would now misuse U.S. customer assets. Faruqui asked the parties to resolve their evidentiary disputes and inform him by December 15. 

“At some point, I have to make a leap of faith and say enough is enough,” - Faruqui reportedly told the SEC’s lawyers.

The very next day, Binance.US announced that CZ had stepped down from his role as Chairman of the Board of Directors as he “transitions to life after Binance.” The U.S. exchange also stated that it is not a party to the settlements with the authorities, and doesn’t have any outstanding matters with the DOJ, FinCEN, OFAC, or CFTC. The SEC lawsuit was not mentioned, but one might hope that without CZ, it will be easier for the exchange to navigate any lingering legal storms. Following the resolution of outstanding issues between Binance and the other U.S. authorities, we might eventually expect a similar agreement between Binance.US and the SEC.

Life after Binance is not currently looking that shiny for CZ. Apart from resigning as CEO and paying a huge fine to avoid heavy jail time, he might still face up to 18 months in prison. The judge initially ruled that Zhao, who pleaded guilty to money laundering charges, would be allowed to return to the UAE to his family, but the prosecution claimed that the former CEO posed a severe risk of flight.

At present, the Binance founder is stuck in the U.S. according to the latest order, until the court decides whether he will be required to remain in the country to wait for his sentencing in February.  At the moment, the prosecution is not seeking pre-sentencing detention. As CZ tweeted earlier, he can “enjoy” all the free time he suddenly has now, sharing his food photos, giving book recommendations and thinking about biotech... just in Seattle instead of the United Arab Emirates.