Binance Judge Seeks To Avoid U.S. Asset Freeze, But Crypto Exchange Faces Lengthy Court Slog; Criminal Charges Are Possible

Binance seems likely to avoid an asset freeze that would have crippled its ability to do business in the U.S., but it faces a long battle with the Securities and Exchange Commission over charges that it ignored the country’s financial-services regulations and is also at risk for criminal penalties if the Department of Justice (DOJ) brings charges of its own.

A federal judge on Tuesday urged the company and the SEC to strike a compromise that would allow Binance to continue its U.S. operations as it fights a civil lawsuit from the regulator. A status update on the negotiations is expected today.

Filings submitted by both parties ahead of the hearing suggest that Binance “offered to give the SEC about 90% of what they were asking for,” says James Murphy, a securities lawyer based in Richmond, Virginia. “I thought it was a very generous and reasonable offer proposal that would accomplish a couple of things. Number one, it should satisfy the SEC and the judge that U.S. customer assets are not at risk because this is not an FTX scenario. And it would permit an orderly functioning of Binance.US during this litigation that may go on for a long time,” he added.

Although Binance may dodge the freeze, says Austin Campbell, an adjunct professor at Columbia Business School and managing partner of blockchain-focused Zero Knowledge Consulting, given the fraud accusations from the SEC and the Commodity Futures Trading Commission (CFTC), “I would expect the DOJ to play along at some point. It’s just a question of when.”

Binance.US has retained George Canellos of the Milbank law firm to represent it, according to a Wednesday filing in the case. Canellos has worked for the SEC and also the Department of Justice according to his profile on the Milbank site.

“Binance is clearly preparing for a criminal prosecution,” John Reed Stark, former SEC internet enforcement chief, said in a Twitter post. “Given the gravity of the fraud alleged by the CFTC and SEC (which might also be the tip of the iceberg of any criminal indictment), a DOJ prosecutor would certainly seek prison time for anyone convicted or pleading guilty to Binance-related crimes.”

Last week, the SEC filed a 13-count complaint against Binance, its CEO Changpeng Zhao and U.S. affiliates. Charges include operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance.US platform; and the unregistered offer and sale of securities. The agency also sought to freeze the company’s U.S. assets, a move that Binance claimed would effectively end its business in the country.

After the SEC filed charges, Binance.US said it would stop offering trading in U.S. dollars after its banking partners signaled intent to pause conventional-currency services. Binance.US oversees $2.2 billion of crypto holdings, according to the agency.

Crypto traders have withdrawn approximately $1.41 billion from Binance’s global exchange in the past seven days, according to data platform DefiLlama. Binance’s BNB
BNB
token lost 22.4% since SEC’s lawsuit was announced, sliding to $233.67 from $301, according to CoinGecko.

The SEC’s lawsuit follows a March complaint from the CFTC against Binance, Zhao and the company’s former chief compliance officer Samuel Lim, which alleged that the firm put profit over compliance and committed “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.”

“There are a handful of different issues that Binance is going to have to defend against in this case. They can be grouped broadly into securities-related—issues around the offering and sale of unregistered securities—the requirement to register with the SEC as an intermediary and all these fraud issues that are really going to be heavily dependent on what the SEC is able to prove based on its investigation of Binance,” says Mike Selig, counsel at New York-based law firm Willkie Farr & Gallagher. “This could potentially take a longer time to resolve that the Ripple case which has taken a long time to begin with.”

The SEC suit against Ripple is in its third year, though a resolution to that case, which involves a single cryptocurrency, is expected soon.