April 22, 2024

A federal judge on Tuesday urged the U.S. Securities and Exchange Commission to reach a compromise with Binance that would allow the global cryptocurrency exchange to continue operating in the United States while it fights a civil fraud lawsuit brought by the regulator.

Last week, the SEC accused Binance and its U.S. affiliate of improperly handling customer deposits and lying to regulators. It is also trying to freeze the company’s U.S. assets, a move Binance claims will force it to shut down in the U.S.

At a hearing in Washington on Tuesday, U.S. District Judge Amy Berman Jackson called on the two sides to reach a possible agreement on the asset freeze, arguing they were closer to a deal than their rhetoric court papers suggested. Judge Jackson ordered them to continue negotiations and submit a status update by Thursday.

She also expressed skepticism about the SEC’s use of its enforcement powers to regulate the cryptocurrency world, calling it “inefficient and cumbersome.”

The move against Binance is part of an increasing regulatory crackdown on the crypto industry. A day after filing the Binance lawsuit, the SEC also sued Coinbase, the largest U.S. exchange, for trading unlicensed securities.

That one-two punch rattled the industry, raising concerns about a years-long legal battle ahead for U.S. cryptocurrencies. Scrutiny has intensified since November, when the FTX exchange collapsed overnight, leading to criminal charges against its founder, Sam Bankman-Fried.

The effort to freeze Binance US assets is one of the most aggressive steps the SEC has taken to rein in the crypto industry to date. While previous actions have forced smaller cryptocurrency firms to pay fines or halt certain products, a victory over Binance could drive the world’s largest exchange out of the country entirely, accelerating a growing corporate exodus.

In a court filing Monday, lawyers for Binance’s U.S. arm, Binance.US, argued that the SEC’s proposed asset freeze would prevent the company from making payments to vendors, employees and suppliers, causing its business to “quickly grind to a halt.” “.

“We are unwilling to accept the death penalty eight days after the trial,” the lawyer for Binance.US said at the hearing.

Carl Tobias, a professor at the University of Richmond School of Law, said the asset freeze request may be an attempt to send a message to the broader crypto industry. “This is part of a reaffirmation of the SEC’s regulatory powers in this area,” he said.

According to the SEC, Binance.US oversees $2.2 billion in crypto assets. The freeze will not affect the company’s larger global exchange, which is already banned from operating in the United States.

Last week, the SEC revealed that it had been investigating Binance since the summer of 2020. Months ago, the agency notified Binance that it was considering bringing an enforcement action.

After the SEC sued Binance last week, Binance.US said its banking partner would no longer offer the key payment channel, forcing the exchange to stop offering trading in U.S. dollars.

The SEC said in court filings that any of its moves should not surprise Binance or its CEO Changpeng Zhao, who is also the target of the lawsuit.

“Defendants knew that their actions toward U.S. investors were unlawful and risked enforcement action by the U.S. government,” the SEC said in a filing. “Rather than stop this illegal activity, Zhao and Binance redoubled their efforts.”

During Tuesday’s hearing, Judge Jackson not only doubted the SEC’s use of its enforcement powers to regulate the cryptocurrency industry, but said Binance lawyers’ surprise at the agency’s aggressive legal arguments “sounds a little hollow.” Many of the central questions in the Binance case — including whether cryptocurrencies should be classified as securities — have been asked by the crypto industry for years, she said.

At the end of the hearing, which lasted about 90 minutes, Judge Jackson recommended that the parties come to an agreement on the SEC’s request to freeze the assets as soon as possible. “Something needs to be done,” she said.

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