In opposition to its demand for depositions, an inspection, and communication from the exchange, the regulator asked a U.S. judge to dismiss Binance's "half-hearted" objections.
The SEC requested permission from a D.C. court to investigate Binance in a court filing on Monday. The SEC reiterated earlier allegations that the company had refused to provide records that the regulator had requested in connection with ongoing litigation proceedings.
In June of this year, the SEC filed a complaint against Binance, claiming that the exchange's global parent company Binance Holdings, and its founder Changpeng "CZ" Zhao operated an unregistered securities exchange.
The Securities and Exchange Commission, which has claimed that Binance.US's staking, clearing, and brokerage services violate federal securities law, has accused the business of refusing to cooperate in an investigation.
Federal U.S. regulators are concerned that the cryptocurrency exchange's use of Ceffu, a custody firm linked to Binance's international division, violates an earlier agreement meant to prevent assets from being hidden abroad.
The holding company for Binance.US, known as BAM, has submitted "only about 220 documents," according to the SEC, "many of which consist of incomprehensible screenshots and documents without dates or signatures."
According to the document, which appears to be a partially unsealed version of one filed in August, "the limited discovery BAM has provided to date raises questions about whether defendants are in violation of the consent order," referring to an earlier legal agreement to ensure only local U.S. staff have access to funds.
The SEC is concerned about the company's use of Ceffu because, according to the SEC, the wallet custody software is connected to the foreign corporation Binance Holdings Ltd. This means that other parts of Changpeng "CZ" Zhao's empire might have access to the funds of American customers.
Binance.US previously referred to the regulator's worries regarding Ceffu as "much ado about nothing" and its request for additional documents as a "futile fishing expedition" in a filing from September 12.
According to Binance.US, the company's international division does not have custody of or access to user cash just because it provides wallets as a Ceffu software supplier.
Binance Custody, which began operations in December 2021 and underwent a rebrand in February 2023, is now known as Ceffu.
According to the filing from Monday, preliminary research has shown that Binance.US needs to be inspected immediately. The SEC thinks Ceffu, which was previously known as Binance Custody, may also be providing services to Binance.US. They imply that Ceffu is being utilized to transfer consumer monies from the United States outside of it. This would be against a prior understanding not to do so.
"The SEC seeks an order compelling BAM to produce documents and communications concerning any entity providing it wallet custody software and related services," the petition read, alluding to BAM's expanding justifications for Ceffu.
The SEC thinks Ceffu, which changed its name from Binance Custody earlier this year, may also be serving Binance.US and is thus being used to transfer cash belonging to U.S. customers outside of the country in violation of a prior agreement not to do so.
According to the filing, the agreement was reached because Binance.US' holding company BAM Trading Services was unable to persuade the SEC that it had exclusive control over its customers' assets. This conclusion was "undermined by BAM's own documents and inability to keep its story straight, [which] did not actually establish that BAM exercised exclusive control over its customers' assets."
"The SEC seeks an order compelling BAM to produce documents and communications concerning any entity providing it wallet custody software and related services,"
Regarding BAM's "evolving" justifications for Ceffu, the filing made reference to them.
In addition, the regulator charged that the company made "inconsistent representations about key facts, slow-rolled small productions of documents and information, and stonewalled on entire categories of information that would likely shed light on its shaky assertions concerning the custody of customer assets."
The SEC asked the court to reject Binance's "half-hearted claims of irrelevance, prejudice, and burden" and compel the exchange to provide the depositions, communications, and other information the regulator is requesting rather than referring to Zhao as "an individual who views himself outside the jurisdiction of any court."
Although its affiliation with the cryptocurrency exchange is still not quite clear, Ceffu has stated that it is a "fully independent third-party technology service provider" and not a part of Binance.
The Commodity Futures Trading Commission (CFTC) sued Binance in March, saying that the company had broken trading and derivatives laws. Binance has undertaken layoffs and suffered the departure of a number of executives throughout the course of the year, underscoring the difficulties and instability it has encountered.
These departures occur as the Bitcoin exchange battles growing regulatory scrutiny in the cryptocurrency sector. The departure of key employees highlights the difficulties and unpredictability Binance.US confronts in managing the changing regulatory environment. Sidney Majalya, the Chief Risk Officer, and Krishna Juvvadi, the Head of Legal, are leaving their posts at Binance.US. Significant changes in the organization's leadership are brought about by their departures.