The legal battle between Binance and the United States Securities and Exchange Commission (SEC) continues to intensify as court documents shed light on the clash over evidence production and witness depositions in the SEC’s case against the leading cryptocurrency exchange.
According to a joint status report filed on January 25, the SEC alleges that BAM Trading Services, the parent company of Binance.US, has not fully complied with its information requests. The regulatory body seeks detailed insights into the custody and liquidity of assets, expressing concerns that Binance.US might have undisclosed control mechanisms over customer funds, reminiscent of the FTX scandal.
BAM’s attorneys vehemently refute these allegations, asserting that the company has adhered to all document production requirements stipulated in the consent order and the expedited recovery request. They argue that the SEC’s methods, including issuing a Temporary Restraining Order (TRO) and pursuing expedited discovery, have imposed an undue burden on BAM.
“At that point, BAM believes it will have more than reasonably complied with its obligations under the Consent Order and requests that expedited discovery be deemed complete as to BAM, particularly given how much harm and burden the SEC’s TRO and approach to expedited discovery has caused BAM over the past seven months.”
Initially established to govern the SEC’s investigation, the consent order has become a focal point of contention. BAM contends that the SEC is exceeding the agreed terms, expanding its probe beyond the safety and accounting of customer assets. The company claims that the SEC is now delving into a broad examination of BAM’s custody policies and practices. This assertion adds another layer of complexity to the already intricate legal battle.
The regulator is reportedly seeking evidence related to concerns that Binance.US may have had a backdoor allowing potential control over customer assets, akin to the situation with FTX. Attorneys for BAM assert that they have fully complied with document production requirements as specified in the consent order and expedited recovery request.
SEC Requests Depositions from Binance.US’s Former CEO and CFO in Lawsuit
The report further highlights pending requests for depositions from BAM Trading Services’ former CEO and CFO, believed to be Brian Shroder and Jasmine Lee.
BAM Trading Services, the parent company of Binance.US, argues that additional depositions from its current or former personnel are unnecessary. The company points to the SEC’s prior deposition of numerous witnesses during the expedited discovery phase, asserting that the regulator has already gathered sufficient information.
BAM attorneys stated that the SEC’s motion “does not identify any evidence” that Shroder and Lee are involved in the day-to-day management details concerning the custody and transfer of customer assets at Binance.US.
BAM’s CEO and CFO have no unique knowledge regarding facts relevant to the limited topics identified in the consent order’s expedited discovery provision,” the lawyers said. The attorneys also said that BAM has offered many other witnesses who have more insights about BAM’s operations, including BAM chief information security officer Erik Kellogg.
“BAM does not believe that the SEC is entitled to any additional depositions from current or former BAM personnel because, among other reasons, the SEC has already deposed a dozen witnesses during expedited discovery.”
The lawyers noted the burden imposed by these depositions far outweighs their potential benefit, and the discovery sought is disproportionate to the needs contemplated by the consent order.
In September, the SEC and Binance agreed on a protective motion requiring parties to file confidential information under seal. The plaintiff and the defendants submitted a joint motion pledging to file confidential and non-public information as protected materials, restricting access to parties such as the judge, attorneys, plaintiffs, and defendants.
Another point of contention is the potential examination of Binance co-founder Changpeng Zhao. Disagreements persist over the specifics of Zhao’s deposition, including its scope, timing, and location. Zhao resigned as CEO of Binance in November 2023, following a $4.3 billion settlement with U.S. regulators.
His sentencing is scheduled for February 23, 2024, while the next status report on the case is expected by February 15. Zhao is currently free on a $175 million bond in the United States, facing a potential 18 months in prison.
