A US magistrate judge has refused to issue an order compelling Binance.US to provide executives for depositions or requiring the SEC to narrow its document requests in the ongoing legal feud. Instead, the judge urged both sides to continue working together on discovery issues.
Introduction
The high-profile case pits the Securities and Exchange Commission against Binance’s US entity over allegations it violated investor protection laws. Recently, the SEC asked the court to force Binance to produce more documents and make executives available for questioning.
But Judge Zia Faruqui declined to rule from the bench during a September 16 hearing. He directed the SEC to scale back some requests but allowed it to move ahead with deposing certain shareholders and assessing custody protections.
The latest development reveals the complex disputes still simmering as the SEC tries to penetrate Binance’s operations through intensive discovery.
Judge Opts For Middle Ground Approach
Rather than siding decisively with either party, Judge Faruqui staked out a compromise position on the discovery battles.
He denied the SEC’s bid to compel Binance to produce all requested documents or make executives sit for depositions. But Faruqui did instruct the SEC to narrow the scope on some information requests.
On the custody issue central to the case, the judge allowed the SEC to question shareholders and push for details on safeguards. However, he stopped short of forcing Binance to provide all sought-after materials related to its relationships with custody providers.
Uncertainty Remains Over Binance’s Custody Controls
The hearing highlighted the SEC’s remaining doubts over custody of customer assets at Binance. It claims Binance has provided “conflicting information” about its relationship with an entity called Ceffu that handles wallet storage.
The SEC alleges Ceffu maintains much closer ties to Binance’s global operations than permitted under an agreement to keep US consumer assets isolated. It’s seeking more documentation to prove whether adequate protections are in place.
But Binance contends the requests are vague and overly broad. Its counsel claims the SEC is seeking information irrelevant to assessing custody arrangements.
Depositions Could Proceed As Executives Depart
Judge Faruqui declined to immediately order depositions but left the door open as Binance sees senior staff exits. The SEC argues the “accelerating mass exodus” underscores the need for testimony from potentially crucial executives before more depart.
Recently departed employees include Binance.US CEO Brian Shroder, Chief Strategy Officer Patrick Hillmann, and other legal/compliance officers. The trading volume on Binance.US has also plunged over 90% from its peak.
The resignations and declining volumes highlight the increasing pressure Binance faces amid the ongoing legal clash with regulators.
Binance Coin (BNB) Price:
Binance Coin (BNB) has seen its price decline over 60% from its all-time high of around $690 reached in May 2021. After peaking above $500 in early 2022, BNB plunged below $300 in June 2022 amid broad crypto market weakness.
BNB now trades around $217 as of September 2023, representing a nearly 70% drop from its peak. The ongoing pressures on crypto markets have kept BNB stuck under key support levels. At its current price of approximately $217, BNB is trading at its lowest levels since early 2021.
The decline reflects fading confidence and uncertainty about Binance’s future as it confronts substantial regulatory headwinds globally.
Conclusion
The latest hearing demonstrates the SEC’s determination to fully scrutinize Binance’s operations and custodial safeguards for US consumers. While falling short of compelling document production, the judge allowed the SEC to proceed with probing Binance’s financial controls and custody arrangements.
With Binance experiencing widening cracks in its C-suite, the SEC may still get its wish for sworn testimony from company leaders. The marathon legal battle seems poised to intensify as the SEC tries to penetrate deep into Binance’s business.
