Global cryptocurrency exchange Binance has filed a complaint against the U.S. Securities and Exchange Commission (SEC), accusing the agency of “abusing the discovery provisions” outlined in a June court order. Binance alleges that the SEC’s discovery demands have gone beyond the scope of the original order, requesting an extensive range of documents that are not directly relevant to customer assets. In response, Binance is seeking a court-ordered protective order to narrow the SEC’s scope and limit its ability to make expansive and unrelated probes. This development follows the SEC’s lawsuit in June against Binance and its U.S. branch over allegations of operating an unregistered securities exchange and associated sales. Additionally, Binance faces challenges from the Commodity Futures Trading Commission for violations of CFTC rules.
Binance Accuses SEC of ‘Abusing the Discovery Provisions,’ Seeks Court-Ordered Protection
In the world of cryptocurrency and digital asset trading, Binance stands out as one of the largest and most well-known exchanges. With a global presence, Binance offers a wide range of services to its users, including trading, investing, and holding various cryptocurrencies. However, this established exchange is currently embroiled in a legal battle with the U.S. Securities and Exchange Commission (SEC), which has raised concerns about the exchange’s practices and compliance with regulations.
Binance Lodges Complaint Against SEC’s Discovery Demands
Binance has recently taken a significant step in its legal dispute with the SEC by lodging a complaint against the regulator’s discovery demands. The exchange filed the complaint on August 14, 2023, accusing the SEC of exceeding the boundaries set by a June court order. Binance alleges that the SEC has been unreasonably demanding a vast amount of documentation that goes beyond the scope authorized in the court order.
SEC’s Discovery Requests Exceed June Court Order
The June court order allowed the SEC to gain insight into Binance’s practices regarding the custody, security, and availability of customer assets. However, Binance asserts that the SEC has used this authority to request extensive documents that are not directly relevant to customer assets. Binance believes that many of these documents have only tangential relevance, if any, to the SEC’s investigation.
Binance Claims Tangential Relevance of Requested Documents
Binance argues that the requested documents by the SEC are of tangential relevance to customer assets and are thus unnecessary for the purpose of the SEC’s investigation. The exchange emphasizes that it has been compliant and has operated in good faith throughout the process. Binance further alleges that the SEC has been abusing the discovery provision of the Consent Order, which authorized “limited expedited discovery” on specific topics related to customer assets’ custody, security, and availability.
Binance’s Offer to Provide Depositions
In an effort to cooperate with the SEC’s investigation and demonstrate its commitment to resolving the dispute, Binance has offered to provide depositions from senior employees responsible for customer funds. These depositions would allow the SEC to gather firsthand information and insights from key individuals within the exchange. However, Binance states that the SEC has not shown interest in pursuing this offer, raising concerns about the regulator’s approach to the investigation.
Binance Seeks Protective Order to Narrow SEC’s Scope
To address its concerns about the expansive nature of the SEC’s discovery requests, Binance is seeking a protective order from the court. This protective order aims to narrow the scope of the SEC’s investigation and limit the potential impact on the exchange and its operations. Binance proposes that the protective order should exclude high-ranking officials, such as CEO Changpeng Zhao (CZ) and the Chief Financial Officer (CFO), from the depositions.
Proposed Limitations on Depositions
In its request for a protective order, Binance proposes limitations on the number of key exchange employees to be deposed. By limiting the depositions to four key employees, Binance aims to strike a balance between providing necessary information to the SEC and minimizing potential disruptions to its operations. Additionally, the proposed limitations would exclude high-ranking officials, ensuring that the depositions focus on individuals directly involved in the management of customer funds.
Limitations on the Scope of Questions
In line with its efforts to narrow the SEC’s scope, Binance calls for limitations on the scope of questions asked during the depositions. The exchange argues that the SEC should be prohibited from conducting expansive probes that are unrelated to customer assets. By enforcing strict limitations, Binance believes that the discovery process can remain targeted and focused on the key issues outlined in the June court order. The SEC’s failure to justify its broad requests further strengthens Binance’s argument for limited scope.
SEC Lawsuit and Challenges from CFTC
Binance’s current dispute with the SEC is not the exchange’s only legal challenge in the United States. In June, the SEC filed a lawsuit against Binance and its U.S. branch, Binance.US, alleging that they operated an unregistered securities exchange and associated sales. Additionally, Binance faces challenges from the Commodity Futures Trading Commission (CFTC), another regulatory body in the United States. The CFTC has accused Binance of knowingly violating its rules and actively working to circumvent compliance obligations.
The legal battle between Binance and the SEC continues to unfold, with the exchange’s recent complaint highlighting concerns about the regulator’s discovery demands. Binance accuses the SEC of abusing the discovery provisions and exceeding the boundaries defined in the June court order. The exchange emphasizes its willingness to cooperate through depositions and its offer to narrow the SEC’s scope through a protective order. The outcome of this ongoing dispute and the court’s decision on the protective order will have significant implications for both Binance and the SEC. As the cryptocurrency industry evolves, regulatory compliance and safeguarding customer assets remain critical areas of concern for exchanges like Binance.