A federal judge on Tuesday urged the Securities and Exchange Commission to reach a compromise with Binance that will allow the global cryptocurrency exchange to continue operating in the United States while fighting a civil fraud case brought by the regulator.
Last week, the SEC charged Binance and its US subsidiary with mishandling customer deposits and lying to regulators. It also attempted to freeze the company’s US assets, a move that Binance claimed would force it to shut down in the United States.
At a hearing in Washington on Tuesday, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia asked the two sides to discuss a possible asset freeze agreement, arguing that they were closer to a deal than the rhetoric in their court records suggested. Judge Jackson ordered them to continue negotiations and file a status update by Thursday.
She also expressed skepticism about the SEC’s use of its enforcement powers to regulate the crypto world, calling it “inefficient and cumbersome.”
The moves against Binance are part of an increasingly aggressive regulatory crackdown on the crypto industry. A day after the Binance lawsuit was filed, the SEC also sued Coinbase, the largest US exchange, for trading in unlicensed securities.
That one-two punch shocked the industry and created the specter of a years-long legal battle over the future of crypto in the United States. Scrutiny has increased since November, when the FTX stock market collapsed overnight, leading to criminal charges against its founder, Sam Bankman-Fried.
The attempt to freeze Binance’s US assets stands out as one of the SEC’s most aggressive moves yet to rein in the crypto industry. While past actions have forced smaller crypto companies to pay fines or discontinue certain products, a victory over Binance could completely drive the world’s largest exchange out of the country, accelerating a growing corporate exodus.
In court filings on Monday, lawyers from Binance’s US arm, Binance.US, argued that the SEC’s proposed asset freeze would prevent the company from paying vendors, employees and suppliers, causing operations to “quickly grind to a halt”.
“We are not prepared to accept a death sentence eight days after the trial,” a Binance.US lawyer said at the hearing.
Carl Tobias, a professor at the University of Richmond School of Law, said the request for an asset freeze may have been intended to send a message to the broader crypto industry. “It’s part of reasserting the SEC’s authority to regulate in this area,” he said.
Binance.US oversees $2.2 billion in crypto holdings, according to the SEC. The freeze would have no effect on the company’s larger global exchange, which is already banned from operating in the United States.
Last week, the SEC announced that it has been investigating Binance since the summer of 2020. A few months ago, Binance said it was considering filing an enforcement action.
After the SEC sued Binance last week, Binance.US said its banking partners would no longer offer critical payment channels, forcing the exchange to stop offering US dollar trading.
The SEC said in court filings that none of its moves should have come as a surprise to Binance and its CEO, Changpeng Zhao, who is also the target of the lawsuit.
“Defendants knew their conduct with respect to U.S. investors was unlawful and risked enforcement action by the U.S. government,” the SEC said in a document. “Instead of stopping such illegal activities, Zhao and Binance doubled down.”
At Tuesday’s hearing, Judge Jackson was not only skeptical that the SEC is using its enforcement powers to regulate the crypto industry, but also said that Binance lawyers’ surprised attitude at the agency’s aggressive legal arguments was “a bit sounded hollow”. She said many of the questions central to the Binance case — including whether cryptocurrencies should be classified as securities — have been posed to the crypto industry for years.
At the end of the hearing, which lasted about 90 minutes, Judge Jackson suggested that both sides agree on the SEC’s request that the assets be frozen as soon as possible. “Something has to be done,” she said.
