Approval Granted for SEC's Request to Unseal Documents in Binance US Lawsuit

The motion by the Securities and Exchange Commission (SEC) to reveal previously sealed documents in its legal action against Binance US has received approval from a district judge, as per a court filing released on Friday.

SEC Allegations Against Binance US

In August, the SEC initially filed the information under seal, restricting access exclusively to the legal representatives participating in the lawsuit. However, on Thursday, the SEC initiated a move to make several documents public, including those related to a declaration by SEC Trial Counsel Jennifer Farer. The parties engaged in the lawsuit had reached an agreement to unseal numerous documents, according to the regulatory agency.

This development transpired in the wake of the SEC's allegations of "lack of transparency" against Binance US and the occurrence of several recent executive departures. Binance CEO Changpeng Zhao acknowledged the departure of Binance US CEO Brian Shroder on Friday, expressing that Shroder deserved a break for his accomplishments. Zhao also mentioned that Binance US's Chief Legal Officer, Norman Reed, was the suitable candidate to lead the company going forward.

The SEC filed a lawsuit against Binance US in June, asserting that the exchange had violated securities laws with 13 charges, including the operation as an unregistered securities exchange. In its initial complaint, the SEC also claimed that billions of dollars in customer funds had been "commingled in an account" controlled by Zhao's entity, Merit Peak. On the day following the lawsuit's filing, the SEC requested an emergency order to freeze Binance US's assets to safeguard customer funds.

As of now, neither Binance US nor its parent company, Binance, has responded to Decrypt's request for comments.

Agreement and Document Disclosure

Shortly after the lawsuit, Binance US reached an agreement with the SEC that prevented the freezing of its assets in exchange for increased transparency and oversight. One of the stipulations of this agreement was that Zhao or any entities under his ownership or control would not have access to the funds.

In one of its court filings on Thursday, the SEC accused Binance US's holding company, BAM, of providing only 220 documents related to its investigation. This count included "unintelligible screenshots," which were deemed insufficient in ensuring the safety of "BAM's customer assets from either Binance or Zhao."

The SEC also argued that Ceffu, a wallet custody software service owned by Binance's international entity, Binance Holdings Ltd, appeared to exert control over BAM's crypto assets through an arrangement.

In a footnote found in a separate filing supporting the SEC's motion to unseal documents, it was mentioned that BAM's external auditor, FGMK, had produced over 6,500 documents, primarily concerning BAM's custody and control of its assets.

Furthermore, BAM's auditor had submitted a letter to the SEC addressing Ceffu's purported role in the custody of customer assets, as claimed by the agency. The filing highlighted that "The SEC did not even learn of the existence of BAM's auditor's concerns expressed in its June letter until it received the auditor's document production in July 2023."

U.S. Magistrate Judge Zia M. Faruqui of Washington, D.C. directed the court clerk to unseal more than a dozen different exhibits in full, while redacting information partially or entirely from other exhibits before making them publicly available.

In its motion to unseal documents, the SEC clarified that it did not oppose the sealing or partial sealing of certain documents identified as confidential by Binance. Judge Faruqui granted Binance US, other defendants, and any nonparties a week to provide explanations for why specific documents should retain their confidential designation.