SEC Intensifies Scrutiny on Binance Operations and Key Personnel

The Securities and Exchange Commission (SEC) is escalating its scrutiny of Binance’s compliance with a consent order, investigating asset controls and employee compensation.

The US Securities and Exchange Commission (SEC) has taken significant steps to increase its oversight of crypto exchanges and their compliance with federal laws. A recent development has prompted the SEC to deepen its investigation into Binance Holdings Limited and key figures associated with the company, including former CEO Changpeng Zhao.

The SEC’s review hinges on a Consent Order issued to Binance, which requires the crypto exchange to demonstrate that its US-based assets, including client holdings, are in its sole possession and control. The regulator expressed concerns about Binance’s compliance with this order, particularly in light of recent findings regarding asset controls and employee compensation by Binance-related entities.

Documentary evidence has emerged showing that Binance Holdings Limited (BHL) may still retain some level of access and control over the private keys associated with client and corporate assets. This contradicts Binance’s claims that they have exclusive control over these assets as stipulated in the SEC order. The SEC subpoenaed BHL to submit documents explaining the technical operation and access controls of their wallet software.

In addition, the SEC’s investigation revealed that many US-based Binance employees received significant compensation from Binance-related entities, directly or indirectly. This raises questions about the independence of these employees from Binance Holdings and Binance’s potential influence over its US entity’s operations.

The SEC also requested communication records between Binance and BAM Trading Services Inc. These records are critical to understanding the nature of interactions and oversight between entities, particularly with respect to the management and security of client assets.

Binance Holdings and Zhao reportedly cooperated with the SEC’s inquiries by agreeing to seek and provide relevant documents. BHL also agreed to conditionally provide a technical fact witness to testify on key topics central to the SEC’s requests. Meanwhile, Zhao’s position that his deposition was unnecessary due to his retired role was met with the SEC’s insistence on his unique knowledge of the operations and financial relationships of Binance’s entities.

As the situation unfolds, the SEC’s increased efforts to ensure that Binance complies with the Consent Order reflects a broader regulatory trend to ensure transparency and accountability in the cryptocurrency industry. The outcome of this investigation could set a precedent for how crypto exchanges operate in the US and how they manage the delicate balance between innovation and regulatory compliance.

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