February 22, 2024

The U.S. Securities and Exchange Commission reached an agreement with Binance late Friday that would allow the world’s largest cryptocurrency exchange to continue operating in the United States and protect customer assets as the company battles government lawsuits.

After fraud charges were filed against Binance on June 5, the SEC moved to freeze the company’s U.S. assets, a move the exchange’s lawyers said would put it out of business in the United States.

But in a court filing on Friday, the SEC said the two sides had reached a compromise after days of court mediation. Judge Amy Berman Jackson, who is overseeing the case in Washington federal court, signed off on the deal Saturday morning.

Under the agreement, funds belonging to customers of Binance.US, an affiliate of the company’s larger offshore exchange, will go into special digital vaults that only the U.S. exchange can access — not Binance’s international business or its founders Changpeng Zhao. The deal states that Binance.US can transfer company assets “solely for the payment of expenses or to fulfill obligations arising in the ordinary course of business.”

Binance said on Saturday, “While we maintain that the SEC’s request for emergency relief is completely baseless, we are pleased that the differences surrounding this request were resolved on mutually acceptable terms.”

SEC Enforcement Director Gurbir Grewal in a statement On Saturday, “we ensured that U.S. customers were able to withdraw their assets from the platform while we worked to address alleged potential misconduct.”

The dispute over Binance assets is part of a high-stakes legal battle that could define the future of the U.S. crypto industry.

In recent months, the U.S. Securities and Exchange Commission has embarked on a tough industry crackdown, suing Binance and its biggest U.S. rival, the cryptocurrency exchange Coinbase. As regulatory pressure mounts, some cryptocurrency firms have vowed to fight in court, while others have explored options outside the United States, moving to countries with less stringent regulations.

An agreement to protect U.S. client assets would resolve the first of many legal conflicts that could arise. In a wide-ranging civil fraud lawsuit, the SEC accused Binance and Zhao of mishandling customer deposits, lying to regulators and allowing market manipulation to proliferate on the exchange.

The SEC said in court filings that the asset freeze was necessary to ensure Binance would not endanger user funds or seek to move funds abroad. But the company said the SEC’s proposal was too punitive and would prevent it from paying employees and suppliers, causing its business to “quickly grind to a halt.”

Binance was also indicted by the Commodity Futures Trading Commission earlier this year, and Mr. Zhao is under investigation by federal prosecutors. The company argued that it was unreasonable for the SEC to go after the company and its founders. Four major law firms are representing Binance and Mr. Zhao (better known as CZ) in the Washington lawsuit.

During a court hearing in Washington on Tuesday, Judge Jackson expressed some skepticism about the SEC’s strategy of using enforcement actions to impose regulation on the cryptocurrency world. She called the approach “inefficient and cumbersome,” one of the reasons she urged the parties to reach an agreement to protect U.S. customer assets.

But Judge Jackson also dismissed arguments that Binance was surprised by the SEC’s aggressiveness

According to court documents, the SEC has been investigating Binance since 2020. “Some of the surprise expressed in the complaint sounds a little hollow,” she told Binance’s lawyers on Tuesday.

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