Binance.US Challenges SEC's Attempt to Freeze Funds in Court

Binance.US contended that if the court were to examine the merits of the SEC's motion, it should reject it. The company believed that the relief sought by the SEC was unnecessary and unjustified. Contrary to the SEC's claim of requesting measures that would maintain the status quo, Binance.US asserted that the proposed remedies would effectively cripple their business.

The entity operating Binance.US is called BAM Trading Services. According to the SEC, BAM Trading Services is owned primarily by BAM Management US Holdings, which, in turn, has strong ties to Binance founder Changpeng "CZ" Zhao.

The SEC filed a lawsuit against Binance, Binance.US, and Zhao on the previous Monday, alleging that these entities functioned as an unregistered securities exchange, broker, and clearinghouse. The regulator claimed that they allowed U.S. customers to purchase and trade certain cryptocurrencies that were considered unregistered securities. Additionally, the SEC accused Binance and Zhao of accessing Binance.US customers' funds and transferring millions to entities owned by Zhao, such as Merit Peak and Sigma Chain.

The Securities and Exchange Commission (SEC) has requested a temporary restraining order to freeze the funds held by Binance.US until they can prove that nobody at Binance, including the majority owner Zhao, can access them. While Binance and Binance.US had previously denied the allegations through blog posts and tweets, they were required to provide a formal response by Monday, as ordered by the court. The U.S. District Court for the District of D.C. has scheduled a hearing on the matter for Tuesday, June 13, at 2:00 p.m. ET.

In their filing on Monday, Binance.US's attorneys argued that freezing the funds would have detrimental effects, primarily harming its customers, leading to the company's closure, and hindering its ability to defend itself in the ongoing litigation. It would prevent Binance.US from paying its employees, vendors, and other parties, as well as maintaining its technology. The filing also highlighted that the freeze might cause concerns among Binance.US's banks, with one bank already announcing its intention to discontinue its business relationship with the firm.

Over the past week, Binance, Binance.US, and Zhao have enlisted legal counsel for the court proceedings, including George Canellos, a former Department of Justice prosecutor and ex-co-director of the SEC Division of Enforcement.

Binance.US proposed an alternative stipulation for the judge's consideration, which outlines a plan for repatriating all assets to BAM Trading's control, restricting access solely to Binance.US employees (excluding Zhao), and ensuring that the global Binance exchange cannot access the funds. Additionally, Binance.US would transfer all funds to new wallets within two weeks. This proposed stipulation falls short of the SEC's request for a complete freeze of assets, but it would allow Binance.US to continue paying its employees and vendors while restricting payments to any other Binance entity.

In its filing, Binance.US expressed its opposition to the larger SEC lawsuit and pointed out that the SEC had failed to identify any specific securities being traded on BAM's platform.

"The SEC suggests that it is a foregone conclusion that cryptocurrency is a security, but that is not the case. That numerous cryptocurrency exchanges, including BAM, have operated in the United States for years without interference by the SEC belies the claim that they are clearly covered by the securities laws," the filing said.

According to Binance.US's filing, the SEC did not provide evidence that Binance.US sold BNB as an investment contract. The filing pointed out that BNB was the only asset mentioned by the SEC as an unregistered security for the purpose of their motion, but Binance.US disputed this claim.