The U.S. Securities and Exchange Commission (SEC) asked a court to grant a temporary restraining order to freeze assets tied to Binance.US on Tuesday.
A court filing made in the D.C. District Court asks for approval to freeze assets tied to BAM Management US Holdings and BAM Trading Services, the holding and operating firms for Binance.US. The SEC sued Binance.US, Binance Global and Binance founder and CEO Changpeng Zhao on Monday, alleging a host of compliance and control failures, including claims that companies tied to Zhao were able to secretly access funds belonging to Binance.US customers.
"The SEC respectfully submits that this relief is necessary on an expedited basis to ensure the safety of customer assets and prevent the dissipation of available assets for any judgment, given the Defendants’ years of violative conduct, disregard of the laws of the United States, evasion of regulatory oversight, and open questions about various financial transfers and the custody and control of Customer Assets – including by Defendants who claim they are not subject to the Court’s jurisdiction – as described in the Complaint, Memorandum of Law, and supporting materials," an SEC filing said.
Another filing seeks an order to "show cause why a preliminary injunction should not be granted," "an order directing defendants to repatriate assets held for the benefit of BAM customers," "an order prohibiting the destruction of records by the defendants" and a host of others.
If the order is granted, Binance would have five days to ensure that only Binance.US has access to customer funds, and within 30 days, all customer assets would be transferred to new wallets that only Binance.US can access.
In a tweet late Tuesday, Binance.US said "user assets remain safe and secure," and said its attorneys have provided information to the SEC addressing fund safety concerns.
In a memorandum of law filed shortly after the application for a temporary restraining order, the SEC reiterated many of its arguments from its original lawsuit, including that Binance had access to Binance.US funds and that Binance and founder Zhao had expressed a desire to evade U.S. regulators.
"Even to the extent they retain control over Binance.US Platform customers’ crypto assets, BAM Trading’s recent assertions raise concerns about its ability to properly custody them. BAM Trading has operated the Binance.US Platform for over 3.5 years, yet it only implemented formal policies for handling crypto assets last month (a timing that corresponds to when the SEC was asking about precisely those practices)," the filing said.
Monday's filing hinted at the temporary restraining order request, with the SEC noting that it would request preliminary injunctive relief which could include asset freezes and "a verified accounting."
In its lawsuit Monday, the SEC alleged that Binance had allowed two companies tied to CZ, Sigma Chain and Merit Peak, to access "billions of U.S. dollars" of customer funds held by BAM Trading.
In a statement in response to the initial suit, Binance said that user funds on Binance.US were never at risk.
All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary," the statement said.
UPDATE (June 6, 2023, 22:05 UTC): Adds Binance.US response.
UPDATE (June 7, 2023, 01:15 UTC): Adds the SEC's memorandum of law.
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