On Tuesday, U.S. District Court Judge Amy Berman Jackson ordered the Securities and Exchange Commission (S.E.C.) and Binance to continue negotiating a compromise over the regulator’s asset freeze request. She urged them to submit a status update by Thursday and expressed skepticism about the S.E.C.’s use of its enforcement powers to regulate the crypto world, calling it “inefficient and cumbersome”.
The S.E.C. had previously charged Binance and its U.S. affiliate with mishandling customers’ deposits and lying to regulators and sought to freeze the company’s U.S. assets, a move that Binance claimed would force it to shut down in the United States.
The S.E.C.’s actions are part of its increasingly aggressive regulatory crackdown on the crypto industry. A day after filing the Binance lawsuit, the S.E.C. sued Coinbase, the largest U.S. exchange, for dealing in unlicensed securities.
The effort to freeze Binance’s U.S. assets stands out as one of the S.E.C.’s most aggressive steps so far to rein in the crypto industry. In court filings on Monday, lawyers for Binance.US argued that the S.E.C.’s proposed asset freeze would prevent the company from paying vendors, employees and suppliers, causing its operations to “quickly grind to a halt.”
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 S.E.C.’s authority to regulate in this area,” he said. Binance.US oversees $2.2 billion in crypto holdings, according to the S.E.C.
Last week, the S.E.C. disclosed that it had been investigating Binance since the summer of 2020. A few months ago, the agency informed Binance that it was considering filing an enforcement action. After the S.E.C. sued Binance last week, Binance.US said its banking partners would no longer provide crucial payment channels, forcing the exchange to stop offering trading in U.S. dollars.
The S.E.C. said in court papers that none of its moves should have come as a surprise to Binance and its chief executive, Changpeng Zhao, who is also a target of the lawsuit. “Defendants knew that their conduct with respect to U.S. investors was illegal and risked U.S. government enforcement actions,” the S.E.C. said in a filing. “Instead of ceasing such illegal activity, Zhao and Binance doubled down.”
At the hearing, Judge Jackson was not only skeptical of the S.E.C.’s using its enforcement powers to regulate the crypto industry, but said that Binance lawyers’ posture of surprise over the agency’s aggressive legal arguments “rang a little hollow.” At the end of the hearing, she suggested both sides come to an agreement on the S.E.C.’s request to freeze assets as soon as possible. “Something needs to be done,” she said.
