In a setback for the government, a federal judge rejected a request by the U.S. securities regulator to inspect the technological infrastructure of Binance US. The U.S. Securities and Exchange Commission (SEC) accuses the American subsidiary of the leading crypto exchange of non-cooperation with its probe.
U.S. SEC Fails to Secure Court Authorization to Inspect Binance US Software
Securities regulators in the United States failed to convince a judge to immediately allow them to check the software of the crypto trading platform Binance US as part of the case against the domestic arm of the world’s largest exchange for digital assets, Bloomberg reported.
The SEC complained it had been struggling to obtain information from the entity since it took legal action against it, its global affiliate, and Binance founder and CEO Changpeng Zhao in June. On Sept. 18, the Commission also sought to force the firm to provide more requested information.
In its filing, the SEC argued that Binance US had failed to fully comply with a consent order requiring it to hand over documents related to the custody and control of customer crypto funds. The agency claims the exchange has handed over fewer than 250 documents and offered just three witnesses to depose.
However, during a hearing on Monday, federal Magistrate Judge Zia Faruqui stated that he wasn’t “inclined to allow the inspection at this time.” He also insisted that the SEC should file more tailored requests and speak with additional witnesses.
Faruqui’s decision to deny the SEC immediate access to Binance US’ systems is a procedural loss for the agency which earlier this year alleged that Binance and Binance US, launched in 2019 to serve U.S. customers, were not in fact independent.
The SEC wants to inspect the technology employed by Binance US to identify the suspected links to the global platform. The regulator also insists it’s necessary to ensure that the Miami-registered company has control over customer assets during the litigation.
Binance US has so far resisted attempts to depose its executives, claiming they don’t have direct knowledge about the security and custody of customer funds, while its lawyers have described the SEC’s search for documents as “overbroad.”
While managed to avoid the freezing of its U.S. platform’s assets in mid-June, its American business was seriously hurt by the legal battle with the SEC. According to the latest numbers from researcher Ccdata, as of this month the platform’s monthly trading volume has declined 98% from January 2022.
Facing issues with banking partners, the exchange had to suspend U.S. dollar deposits earlier this year. It also announced it’s transitioning to crypto-only trading and has laid off a number of employees.
Three key Binance US executives recently quit their jobs, including CEO Brian Shroder and the heads of legal and risk, Krishna Juvvadi and Sidney Majalya, who left amid another wave of job cuts in which the exchange reduced its workforce by a third.
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