Home / Business / SEC Warns: Binance U.S. Clients Face “Significant Risk” as $2.2 Billion in Funds Endangered

SEC Warns: Binance U.S. Clients Face “Significant Risk” as $2.2 Billion in Funds Endangered

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SEC Warns Binance U.S. Clients Face Significant Risk as $2.2 Billion in Funds Endangered

In a filing made on Tuesday night, federal regulators expressed concern that the $2.2 billion worth of U.S. customer assets held by Binance, a cryptocurrency exchange, is under a “significant risk” of being misappropriated by its founder, Changpeng Zhao. The regulators emphasized the necessity of implementing a freezing order to safeguard the funds, following the charges filed by the Securities and Exchange Commission against the crypto exchange.

In an emergency motion filed earlier, lawyers representing the Securities and Exchange Commission (SEC) raised concerns about potential capital flight and requested a judge’s intervention to repatriate and freeze the assets of Binance’s U.S. customers. The motion aims to prevent any illicit transfers by either Changpeng Zhao or Binance entities. The SEC had filed a lawsuit against Binance and Zhao on Monday, alleging their involvement in the unregistered offering and sale of securities, as well as the commingling of investor funds with their own.

In the recent filing, Changpeng Zhao, described as a “foreign national,” was portrayed as openly asserting his exemption from the jurisdiction of the court. Lawyers from the Securities and Exchange Commission (SEC) claimed that two Binance U.S. subsidiaries, BAM Trading and BAM Management, were under Zhao’s control and had already amassed “illicit gains” totaling at least $420.4 million through profits and venture fundraising activities.

The filing revealed that over the course of several years, communications between the Securities and Exchange Commission (SEC) and Binance, a company that asserts it has no official headquarters, indicated a lack of clear information regarding the control of customer assets held by Binance.US. The SEC alleged that both Changpeng Zhao and Binance had operated with unrestricted authority over customer assets worth billions of dollars.

According to the Securities and Exchange Commission (SEC), attorneys representing Zhao contend that the billionaire is not bound by U.S. law, despite his influence over U.S. companies and ownership of assets that involve the transfer of substantial funds to holding companies based in the Swiss and British Virgin Islands. Contrary to Zhao’s stance, the SEC asserts that both federal law and legal precedent firmly establish the court’s jurisdiction over both Zhao and Binance.

In response to Binance’s U.S. arm claiming control over a significant portion of its technology and financial infrastructure, the SEC emphasized that Changpeng Zhao’s ultimate control poses a risk to investor assets unless immediate measures are implemented. The SEC firmly stated that there is no uncertainty regarding the court’s personal jurisdiction over all defendants involved in the case, underscoring the need for prompt action to safeguard investor assets.

The filing expressed apprehension about the past actions of Changpeng Zhao and Binance, highlighting their explicit attempts to circumvent U.S. regulation and oversight. It further emphasized the covert control exerted by Zhao over BAM Trading and the intermingling and transfer of BAM Trading assets through a network of entities controlled by Zhao outside of the United States. Given this history, the filing questioned the assurance that employees of BAM Trading are currently operating independently from the influence of Zhao or Binance.

Federal regulators are seeking approval from the court to serve Changpeng Zhao through email, as his “pattern of geographical elusiveness” has made it challenging to determine his precise residence or current location. It has been reported that Zhao is a resident of the United Arab Emirates (UAE). Meanwhile, Binance has not yet provided a response to the request for comment.

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