Binance.US, the U.S. arm of the global cryptocurrency exchange Binance, encountered significant operational disruptions following legal disputes initiated by the United States Securities and Exchange Commission (SEC).
Initiated in June last year, the lawsuit accused Binance, Binance.US, and its founder, Changpeng Zhao, of various infractions, including the sale of unregistered securities. These legal proceedings resulted in a substantial reduction in the company’s workforce, with over 200 employees laid off due to a sharp decline in revenues.
In a deposition given in December, Christopher Blodgett, the Chief Operating Officer of Binance.US, outlined the repercussions of the SEC’s lawsuit, which were made public in a court filing on March 5. Blodgett emphasized the severe damage inflicted on the company’s relationships with banking institutions, making it increasingly difficult to execute transactions in U.S. dollars.
He characterized the company as “radioactive” to banks, suggesting that any affiliation with Binance.US could invite scrutiny from the SEC.
The legal battles not only impacted staffing and banking relations but also the company’s market position. Blodgett disclosed a reduction of approximately $1 billion in customer assets on the platform shortly after the SEC’s legal actions.
The loss of banking support, coupled with the failure to secure new banking partners, has severely constrained the company’s operations. Prior to the lawsuit, Binance.US collaborated with over 20 market makers, a number that has since plummeted to fewer than five, indicating a significant erosion of institutional confidence.
Furthermore, the SEC’s accusations against Binance.US include allegations of engaging in wash trading to inflate trading volumes and commingling user funds in an account linked to Zhao at Merit Peak.
The regulatory body’s concerns regarding the potential offshore transfer of customer funds prompted a temporary restraining order (TRO) to freeze Binance.US’ assets, which was subsequently dismissed by a judge the following day.
In a related development, Binance, Binance.US, and Zhao reached a settlement with various government agencies in November, agreeing to a $4.3 billion payment for breaching money laundering and terrorism financing laws. However, despite this settlement, the SEC continues its investigation and maintains its charges against the cryptocurrency exchange.
Zhao faces a sentencing hearing on April 3 after pleading guilty to a charge of money laundering, with a possible prison sentence of up to 18 months.