SEC freezes Binance funds, exchange responds.

One day after filing a lawsuit against cryptocurrency exchange Binance, the US Securities and Exchange Commission (SEC) has requested that a court freeze funds belonging to Binance’s American affiliate, Binance.US. On Tuesday evening, the SEC filed an emergency motion in federal court in Washington, D.C.

The regulator has also asked the judge to repatriate both fiat currency and cryptocurrency held by Binance.US customers. The freezing order applies only to two of Binance.US’s holding companies, BAM Trading and BAM Management. The SEC alleges that these two companies, controlled by Zhao, have made “illicit gains” of over $400 million in profits and venture fundraising.

In addition, the order will apply to dozens of accounts that the exchange holds with Prime Trust, Axos Bank, the now-defunct Silvergate Bank, and other institutions. The SEC called the emergency restraining order necessary to “prevent the dissipation of available assets for any judgment, given the Defendants’ years of violative conduct, disregard of the laws of the United States”.

This order compels Binance founder Changpeng Zhao to “show cause why a preliminary injunction” against Zhao and his two holding companies “should not be entered”. It would also prevent all three Binance.US entities from destroying any kind of evidence.

In the filing, the federal regulators also said that $2.2 billion worth of Binance.US customers’ funds are at “significant risk” unless the freezing order is in place. The SEC had alleged that “Zhao and Binance have had free reign” over “customer assets worth billions of dollars”.

Binance and Zhao Defend Their Positions

Shortly after the SEC filed for an emergency motion on Tuesday evening, Binance.US was quick to respond, assuring investors that the funds are “SAFU” (Secure Asset Fund for Users). It noted: “User assets remain safe and secure, and the platform continues to be fully operational with deposits and withdrawals functioning as normal.”

Binance called the filing of the preliminary injunction “unwarranted” and blamed SEC staff for trying to obtain “an advantage in litigation versus genuine concern about the safety of customer assets”. Binance stated that even though they provided information to assure the SEC staff about the safety of customer assets, the staff still chose to file a motion for a temporary restraining order and preliminary injunction. Binance expressed disappointment in this action but remains determined to defend itself in court.