Binance.US, the U.S. arm of crypto exchange Binance, suffered a major setback following a lawsuit from the United States Securities and Exchange Commission (SEC) in June. The lawsuit led to the termination of over 200 staff members and a significant decline in revenues, causing the company to face severe challenges.
In a deposition from December, Binance.US Chief Operating Officer Christopher Blodgett stated that the company has become “radioactive” to banks. He explained that banks are hesitant to work with Binance.US due to the risk of attracting unwanted attention from the SEC. Blodgett expressed understanding towards the banks’ concerns, as they could expect to receive subpoenas from the SEC once their association with Binance.US becomes known.
The SEC charged Binance, Binance.US, and founder Changpeng “CZ” Zhao with various allegations, including the sale of unregistered securities. As a result, Binance.US lost the support of its banking partners, making it impossible for its customers to transact in U.S. dollars. Blodgett stated that the company has been unable to find new banking partners, leading to a significant decline in business operations.
Following the SEC’s actions, Binance.US witnessed an outflow of approximately $1 billion in assets from the platform. The company was forced to terminate more than 200 employees, representing over two-thirds of its workforce, as its revenue plummeted by over 75%.
In addition to the financial impact, Binance.US also experienced a loss of institutional trust. Blodgett revealed that the number of market makers supporting the exchange decreased from over 20 to less than five after the lawsuit.
The SEC accused Binance, Binance.US, and Zhao of engaging in various illicit activities, such as selling unregistered securities and participating in wash trading to inflate trading volumes. The SEC also alleged that the exchange’s user funds were mixed with an account tied to Zhao’s Merit Peak.
In response to the lawsuit, the SEC filed a temporary restraining order to freeze Binance.US’ assets, citing concerns that customer funds might be transferred offshore. However, a judge dismissed the order.
Binance, Binance.US, and Zhao admitted to violating money laundering and terrorism financing laws and reached a settlement with the Department of Justice, Treasury, and the Commodity Futures Trading Commission, amounting to $4.3 billion in November. Despite the settlement, the SEC is continuing its investigation and gathering evidence for its case against the exchange.
Zhao pleaded guilty to a money laundering charge and is awaiting his sentencing hearing, which is scheduled for April 3. He could face up to 18 months in prison.
In summary, Binance.US faced significant challenges and setbacks following the SEC’s lawsuit. The company experienced a decline in revenues, termination of staff, loss of banking partners, and erosion of institutional trust. The SEC’s charges against Binance, Binance.US, and Zhao remain in place, and the investigation is ongoing.