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CryptoSlate
CryptoSlate
The SEC is using now-unsealed court records to bolster its Binance lawsuit
3 months ago
CoinDesk
CoinDesk
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Binance, Binance.US and Changpeng Zhao argued that the U.S. Securities and Exchange Commission did not meet the requirements of the "Howey Test" in its suit against the two companies and their founder in a new filing Tuesday. Binance and Zhao, more commonly known as "CZ," filed a reply to the SEC, alongside Binance.US, which submitted its own separate, but similar, filing arguing that the SEC did not show that the exchanges' U.S. customers had any contracts that would meet the definition of an "investment contract," or that other elements of the Supreme Court case were met. It's the latest bid to dismiss a lawsuit brought by the federal regulator in June, when the SEC alleged that Binance and Binance.US allowed the general public to buy and trade unregistered securities by listing certain cryptocurrencies and offering a staking service. Binance, which recently settled different charges with the U.S. Department of Justice, Commodity Futures Trading Commission, Office of Foreign Asset Control and Financial Crimes Enforcement Network, filed to dismiss the SEC lawsuit in September, arguing the regulator was overreaching its authority (a similar argument it made in filing to dismiss a CFTC suit in July). In Tuesday's filings – which are responding to the SEC's own reply to the motion to dismiss – both Binance and Binance.US argued that the regulator hadn't shown there were any obligations to the exchange's users after they purchased certain cryptocurrencies, suggesting there was no investment contract as needed by the Howey Test. DOJ settlement Binance also pushed back against the SEC's adding the exchange's guilty plea with the DOJ and consent order with FinCEN, or Zhao's own DOJ plea, in the ongoing case. The SEC argued that the settlements showed that Binance was well aware it was operating in the U.S., serving U.S. customers and otherwise tapping infrastructure within the U.S. for transactions. "Zhao’s and Binance’s plea agreements and the Consent Order provide further grounds for this Court to deny the Joint Motion [to Dismiss]," the SEC said. In another filing Tuesday, Binance argued that securities laws wouldn't apply the same way the Bank Secrecy Act or International Emergency Economic Powers Act (two of the laws governing the charges Binance and Zhao settled) did. "Jurisdictional admissions under the BSA do not bring any of the SEC’s claims within the reach of the securities laws," Binance and Zhao claimed. The filing also argued that the settlements and consent order didn't implicate securities laws. "That facts in the plea agreements with the Department of Justice show that BHL and Mr. Zhao violated the Bank Secrecy Act ('BSA') does not say anything about whether there was fair notice of the SEC’s theory that the crypto assets at issue were securities under the Securities Act or the Exchange Act," the filing said.

3 months ago
Cryptopolitan
Cryptopolitan
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Binance Holdings and its former chief, Changpeng Zhao, have reached a resolution with U.S. authorities. Judge Richard Jones approved the plea agreements, as revealed in recent court documents in the U.S. District Court for the Western District of Washington in Seattle. This conclusion follows Binance’s admission of guilt for contravening U.S. anti-money laundering and sanctions regulations in November. The cryptocurrency exchange agreed to a substantial payment exceeding $4.3 billion, marking a pivotal moment in the intersection of cryptocurrency operations and U.S. legal standards. Details of Binance’s legal settlement Binance, known for operating the world’s largest cryptocurrency exchange, Binance.com, faced allegations under the Bank Secrecy Act (BSA), failing to register as a money transmitter, and violations of the International Emergency Economic Powers Act (IEEPA). The settlement with the Department of Justice involves a guilty plea and a resolution to pay over $4 billion. Changpeng Zhao, also a Canadian citizen, pleaded guilty to the charge of not implementing an adequate anti-money laundering program as mandated by the BSA. This admission led to his resignation as CEO.  Last week, Zhao relinquished his position as the board of directors chairman for Binance.US, effectively eliminating any influence he held over the platform’s governance. This move also diminished his interest in the U.S. branch of the exchange to a purely economic one. CZ and Binance  The court documents highlight Binance’s focus on rapid growth and profit, often at the expense of complying with U.S. laws. Since its inception in 2017, the crypto exchange quickly rose to prominence, largely fueled by its substantial U.S. customer base. Due to its operations involving U.S. customers, Binance was obligated to register with the Financial Crimes Enforcement Network (FinCEN) as a money services business. Moreover, it was required to establish an effective anti-money laundering program to prevent its use in money laundering activities. Moreover, there have been recent updates on Zhao’s activities on X following his resignation as Binance CEO and admission of guilt. In the past week, he has shared details about his lunch, reposted a message from the new CEO of the crypto exchange, Richard Teng, and discussed taking risks. In one of his posts, Zhao mentioned that 10 years ago, he quit his job, sold his house, and invested in Bitcoin, acknowledging that not everyone should follow the same path. He emphasized the importance of understanding one’s own risk profile and learning risk management to make informed decisions. Nonetheless, Binance’s recent court case underscores the increasing scrutiny and regulatory pressure facing the cryptocurrency industry, particularly concerning compliance with anti-money laundering standards and U.S. laws.

3 months ago
Cryptopolitan
Cryptopolitan
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For most the Binance saga with U.S. regulator the SEC (Securities and Commodities Exchange) has come to an end. The end while better than FTX’s demise is still a big question mark and there are more queries than answers. Will Binance eventually be fully regulated as a crypto exchange in the UAE and if not what will happen to Binance globally after CZ Changpeng Zhao its founder has stepped down. The Context of Binance after Settling with U.S. regulator The settlement while huge can be paid by six year old Binance which has 150 million users worldwide. Binance will pay $4.3 billion which is considered one of the largest corporate agreements in U.S. history, HSBC in 2012 agreed to pay $1.9 billion for its role in facilitating drug cartels’ money laundering. Goldman Sachs coughed up $2.9 billion in 2020 over charges it had bribed Malaysian government officials. Personally, Binance Founder and CEO will pay a $50 million fine and step down as CEO. Zhao pleaded guilty to violating Bank Secrecy Act in federal court in Seattle. The deal, which includes the Justice Department, Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the exchange. In the court proceedings, Binance admitted that it allowed transactions with Hamas and other terrorist groups on the platform, and was charged with three counts, including anti-money laundering, operating an unlicensed money transmitting business and violating US sanctions. Binance is paying a criminal fine of $1.8 billion and forfeiting $2.5 billion, according to court filings. While CZ could face 10 years in prison it is expected he will not serve more than 18 months as per the plea deal. Another consequence of the deal is that Binance.com will not be able to continue in the United States, yet Binance.US a subsidiary created in 2019 a regulated platform will continue. It is known that 25% of Binance clients were from the United States. Finally Richard Teng, the former MENA regional head of Binance will replace CZ as CEO. CZ himself announced this on X stating, “Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself. Binance is no longer a baby. It is time for me to let it walk and run. I know Binance will continue to grow and excel with the deep bench it has. I’m pleased to announce that Richard Teng, our now former Global Head of Regional Markets, has been named the new CEO of Binance. Richard is a highly qualified leader and, with over three decades of financial services and regulatory experience, he will navigate the company through its next period of growth. He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth.” Binance Saga with U.S. regulator and global regulators Over the past year, Binance has had a tough time with global regulators. This has led to Binance leaving the Netherlands, Cyprus, UK, Belgium, Austria, France and Germany. In addition Binance lost its key European banking partner, PaySafe Solutions. This loss of a banking partner further complicated Binance’s operations in Europe. In Europe the only countries where Binance is legally able to operate are Italy, Lithuania, Spain, Poland and Sweden. Noteworthy, is that once MICA regulations are applied in Europe, Binance will only need to be regulated in one European country in order for it to serve the entire 27 countries forming the European Union. Binance is also regulated in Japan, and in Bahrain. In terms of licensing in Hong Kong, It has been stated that Binance set up a separate crypto exchange in Hong Kong named HKVAEX to pursue a license in the city, the South China Morning Post reported that the crypto exchange HKVAEX operates separately with its own executives, the two companies share resources, sources told the Post, however Binance noted HKVAEX is not in the Binance Group of companies. In Australia Binance for example had to shut down its local derivatives exchanges, while Brazilian authorities have raised eyes over the same concerns with Binance. However Binance did receive a license in El Salvador. Binance received both a Bitcoin Services Provider License by the central bank and the first non-provisional Digital Assets Services Provider license (DASP), by the National Commission of Digital Assets (Comisión Nacional de Activos Digitales). Binance in the UAE While Binance and its former CEO have always spoken highly of the UAE and praised it for its clear crypto regulations and friendly approach to crypto business with CZ buying the only home he owns in Dubai, the crypto exchange has yet to receive a full license in the UAE for crypto trading. For example in Abu Dhabi under the ADGM (Abu Dhabi Global Markets) regime Binance only received a crypto custody license. As per ADGM website, “Binance received a Financial Services Permission (FSP) from the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM). Once the FSP conditions are fulfilled, Binance will be permitted to offer custodial services to professional clients in and from the ADGM.” Binance (AD) Limited is not permitted to deal with Retail Clients Yet other companies within the ADGM regime have received crypto exchange licenses. M2, owned by Phoenix Group was licensed in ADGM in July 2023. Its license allows it to operate a Multilateral Trading entity. Another licensed crypto exchange in ADGM is RAIN in ADGM which has a license to deal in Investments as Agent and provide custody services. Then there is Venomex which has a multilateral trading facility and custodian license. Glomax is also another regulated exchange, MidChains, Matrix, VenomX all have multi trading licenses in ADGM. Even in Dubai under the VARA (virtual asset regulatory authority) Binance has still not received a full license and it is still operating under an MVP operational license that can only serve institutional and qualified investors and not retail. Yet in VARA, five companies have received crypto exchange or crypto broker licenses including names such as GC Exchange, Fuze, BackPack exchange, Toko, and Laser Digital. It will be interesting to see whether or not the recent court deal with CZ and Binance will help to push Binance licenses in the UAE or pull back those licenses, especially given the increased scrutiny by UAE Central Bank on AML and KYC guidelines, as well as the push against unlicensed VASPs. Despite the fact that Richard Teng headed Binance MENA and before that its regulatory division and despite the fact that Mr. Teng served as CEO of the Financial Services Regulatory Authority of ADGM as well as chief regulatory officer of the Singapore Exchange, he was not able to push Binance’s license quickly in the UAE. The Future of Binance In terms of the future of Binance, Teng is reassuring stating that his strategy for navigating Binance is based on reassuring users that they can remain confident in the financial strength, security and safety of the company as well as collaborating with regulators and work with partners to drive growth and adoption of Web3. Teng adds, “With CZ, and our leadership team’s support, I have accepted this role so that we can continue to meet and exceed the expectations of stakeholders while achieving our core mission, the freedom of money. The foundation on which Binance stands today is stronger than ever.” Teng also reiterated that the fundamentals of their business are very strong with robust revenues and profits. In much the same terms CZ in his statement on X also made reassurances, stating,” I am proud to point out that in our resolutions with the U.S. agencies they do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation. Funds are SAFU!” Yet rumors are circulating among the crypto community that Binance might be bought by UAE based M2 crypto exchange, which the famous investor Kevin O’Leary has dubbed as his top choice. O’Leary in an interview with Benzinga stated, “Abu Dhabi is the capital of capital, and I think something big is about to happen there. I am leaving soon for the launch of M2, and I think it will take up huge capital. I don’t know if you have a bigger exchange emerging that’s completely compliant.” Coincidently, M2 is launching on November 28th 2023. He adds, “However, so much is happening in the UAE, Qatar, and Saudi Arabia. If you’re a global investor like me, don’t ignore that. You put in an allocation.” Furthermore Binance is not entirely out of the woods.  According to Robert Le, a crypto analyst from the firm Pitchbook, “The ongoing civil lawsuit with the SEC remains a concern for the exchange, which (is) likely to result in further fines.” So far investors had pulled out $1.7 billion according to data from Nansen analytics platform, yet the outflows were small relative to the more than $65bn of assets that remain on Binance, Nansen added. Others believe it could be bought by a huge banking entity wanting to enter the crypto space. Some have speculated that Black Rock a huge financial institution was involved in the events around Binance. Those who think that Black Rock was involved believe that their discussions on Bitcoin ETF might have played a role in the events surrounding Binance and CZ who see Wallstreet taking over the market. Yet some believe that in the long term, it is decentralized exchanges and DeFi that will ultimately replace toughly regulated centralized crypto exchanges. This is further supported by comments made by CZ himself on X where he says, “My current thinking is I will probably do some passive investing, being a minority token/shareholder in startups in areas of blockchain/Web3/DeFi, AI and biotech. I am happy that I will finally have more time to spend looking at DeFi.” As Anton Golub, Founder and President of SwissAssetDao explained in an online session on Binance, “Before Binance was the biggest crypto exchange in the world, there was OKcoin, MT.Gox and Bittrex and there will be more and bigger ones in the future for sure. While not clear now who that could be, if I were to make a bet, I would pick one in DeFi.”

3 months ago

Yay! You have seen it all