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After an initial attempt to freeze Binance’s US assets by court order, a US regulator has succeeded in negotiating an asset protection agreement with Binance while securities litigation continues.
A US District Court judge issued a consent order formalising the terms of an asset protection agreement between Binance and the Securities and Exchange Commission (SEC).
As announced by the SEC, the consent order requires that Binance CEO Changpeng Zhao and three Binance US subsidiaries repatriate all assets held on behalf of Binance US customers.
This includes all fiat currency and crypto-assets that are deposited, held, traded or accrued by customers — including affiliated and unaffiliated liquidity providers — of the Binance US platform.
Earlier this month, as covered by VIXIO, the SEC revealed in an emergency motion that Binance US customer assets have been custodied by Binance.com, its global business.
This arrangement, known as the "wallet custody agreement" (WCA), was in effect until at least December 2022, according to the SEC.
The WCA is one of the reasons that the SEC will argue that there is little segregation between Binance US and Binance.com — a structure that the SEC alleges is deliberately designed to evade regulation.
In addition to repatriation of customer assets, Binance's US subsidiaries are prohibited from spending corporate assets on anything other than regular business expenses; evidence of expenditures must be submitted to the SEC while litigation is ongoing.
In effect, the order aims to ensure that Binance US customers can withdraw their assets and that those remaining assets on the platform are protected from risk of loss, transfer or dissipation.
Gurbir Grewal, director of enforcement at the SEC, said the consent order is an early victory for the regulator and for Binance US customers.
“Given that Changpeng Zhao and Binance have control of the platforms’ customers’ assets and have been able to commingle customer assets or divert customer assets as they please, as we have alleged, these prohibitions are essential,” he said.
“Further, we ensured that US customers will be able to withdraw their assets from the platform while we work to resolve the alleged underlying misconduct and hold Zhao and the Binance entities accountable for their alleged securities law violations”.
The consent order requires that Binance US customer assets are custodied within the US and made available to customers for the duration of litigation.
Other requirements include the submission of an expedited sworn accounting of certain Binance US assets and all defendants to undergo expedited discovery customer asset custody and security.
The asset protection programme relates to the SEC's lawsuit against Binance earlier this month, comprised of 13 filed charges.
As per the complaint, the defendants are accused of operating an unregistered exchange, broker-dealer and clearing agency, selling unregistered securities and misrepresenting controls against market abuse.
The SEC is ultimately seeking the expulsion of Binance from the US market and disgorgement of all of its “ill-gotten” revenues to date.
