Comment on Binance BAM being exempted from "allowing it to invest customer funds in U.S. Treasuries"

Author: Aiying; Source: AiYing Compliance

Binance's legal disputes with US regulators seem to be endless. Although it has paid a huge fine of 4.3 billion, this is a settlement with the US Department of Justice (DOJ), the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the US Internal Revenue Service (IRS) and the Commodity Futures Trading Commission (CFTC). The US Securities and Exchange Commission (SEC) is still going on.

Aiying has sorted out yesterday's court order documents against Binance (BAM): Since the case prosecuted by the SEC was heard in the U.S. District Court for the District of Columbia, the document released yesterday was a court order of the U.S. District Court for the District of Columbia. This does not mean the end of the case, but is only to ensure that Binance can operate normally during the trial of the case to avoid a major impact on customers and the market. In Aiying's opinion, this is indeed more humane. The main content of the document is roughly: "Although I am suing you, you can still do the following three things during this period:

• Authorized investment company assets: BAM can give its money to other companies or investment consultants for investment, as long as these companies are not affiliated with Binance. BAM needs to ensure that the money will not be invested in companies related to Binance.

• Investment in customer legal currency funds: BAM will invest part of the customer legal currency funds currently held in BitGo in U.S. Treasury bonds, but only in 4-week short-term Treasury bonds (28 days) issued by the U.S. Treasury. The premise for this is that Binance cannot be involved in the investment process, and BAM must ensure that there is enough money for customers to withdraw at any time.

• Custody of Cryptocurrency: BAM can custody and transfer assets to wallets provided by non-affiliated third-party custodians in the United States, provided that the customer asset control and new private keys of these wallets must be controlled by BAM Trading employees or third-party custodians located in the United States, and all transfers and withdrawals require approval from BAM Trading and third-party custodians when necessary. Binance entities cannot have control over the assets in these wallets.

Supplementary Background

1. The main parties involved in the lawsuit include:

• Binance Holdings Limited: This is a limited liability company registered in the Cayman Islands, founded and owned by Changpeng Zhao. Since July 2017, it has been operating the Binance.com platform, an international crypto asset trading platform.

• BAM Trading Services Inc.: This is a company registered in Delaware and the operating entity of Binance.US, with its headquarters in Miami, Florida. It is a wholly-owned subsidiary of BAM Management. BAM Trading holds MTL (Money Transmitter Licensing) licenses in 43 jurisdictions in the United States

• BAM Management US Holdings Inc.: This is a company registered in Delaware and is the parent company of BAM Trading and other related entities. When the Binance.US platform was launched in 2019, BAM Management was wholly owned by BAM Management Company Limited, a company in the Cayman Islands, which in turn was wholly owned by CPZ Holdings Limited, a company in the British Virgin Islands owned and controlled by Changpeng Zhao

2. Review of the U.S. Securities and Exchange Commission (SEC)’s litigation against Binance

1. 2022: Preliminary Investigation and Warning
• The SEC began a preliminary investigation into Binance in 2022. Although the specific details have not been fully disclosed, the main issues of concern to the SEC include whether Binance has violated U.S. securities laws, especially by providing securities trading services without registration.
2. June 2023: SEC formally sued
• In June 2023, the SEC formally filed a lawsuit against Binance and its founder Zhao Changpeng. The SEC accused Binance and its related companies of violating securities laws, mainly including failure to register as a securities exchange and securities broker, and violating anti-money laundering regulations.
• The lawsuit also includes the classification of certain crypto assets on the Binance platform (such as Binance Coin BNB) as securities, and requires Binance to stop trading and selling these securities.
3. July 2023: Reaction and Response
• Binance and Zhao Changpeng responded to the SEC's lawsuit, denying all allegations and claiming that the SEC's lawsuit lacks legal basis. And stated that Binance has always been committed to complying with all relevant laws and regulations, and has taken measures to improve compliance.
4. September 2023: Preliminary Ruling and Arbitration
• During the litigation, the court ruled on some preliminary issues, including whether the SEC was allowed to freeze Binance’s assets and whether Binance was required to provide more documents. At the same time, the two parties entered the stage of partial settlement and arbitration to discuss possible settlement plans or specific solutions to the case.
5. 2024: Case Progress
• As of 2024, the case is still ongoing. Depending on the complexity of the case and the requirements of the legal process, the case may go through further trial, evidence presentation, and possible settlement or judgment.