U.S. Judge Rebuffs SEC Request for Binance.US Asset Freeze for Now

WASHINGTON, D.C. — The federal judge overseeing the U.S. Securities and Exchange Commission's case against Binance and Binance.US declined to order a temporary restraining order freezing the U.S. trading platform's assets.

That would allow the U.S. arm of the company to continue doing business while hashing out restrictions with the regulator.

If the two sides can agree on limits, Judge Amy Berman Jackson, of the D.C. District Court, said “there’s absolutely no need” for a restraining order. In the meantime, the judge ordered Binance.US to provide a list of its business expenses to the court, and ordered the parties to continue negotiating. A status update is due by close of business Thursday.

In a packed Washington courtroom, the judge hammered SEC attorneys about their motion to freeze all of the company's assets until it could prove that no one from Binance's global platform, including Changpeng "CZ" Zhao, had access to its private keys.

At times, the judge seemed frustrated by the responses she was hearing when asking whether any Binance.US customer funds had actually left the U.S., after multiple SEC attorneys said they were mainly concerned about the fact that Binance's global platform controlled enough private key shards to move funds.

"I want to know if it's happening or not," she said. "It's stunning that I've asked each of you this."

Sticking point

Earlier in the day, the judge hinted she may have been inclined to grant some sort of restriction on Binance's access to Binance.US assets but not a full restraining order, ordering the companies to reconcile their proposed restrictions and ordering the SEC to contrast what it wanted with what the companies proposed in lieu of the restraining order itself.

Jennifer Farer, an SEC lawyer, told the judge Tuesday, “We are open to the business continuing to operate.”

And representatives of Binance.US said they mainly wanted to be allowed normal operating expenses and that they were “not willing to accept the death penalty” represented by a total asset freeze.

Farer said Binance.US had constantly changed its story about how crypto assets and funds were held, from Binance.US telling the SEC that it had an agreement with Binance to saying the agreement was not operational to saying the non-operational agreement had been suspended.

Binance.US also told the SEC that it may cease doing business in the U.S., prompting the need for an emergency order, the attorney said.

“There’s a back-and-forth about whether they’re shutting down or not shutting down,” Farer said.

Still, at the end of the day the parties were not that far apart, Judge Jackson said. If they could find an agreement, that would give all parties time to properly sort through the case's details.

The SEC sued Binance and Binance.US, alongside Binance founder Changpeng "CZ" Zhao, last week, alleging they were operating as an unregistered securities exchange, brokerage and clearing agency.

The regulator also alleged massive commingling of funds allowing Zhao, a Canadian national living in the UAE, access to Binance.US customer assets.

The SEC followed the lawsuit up with a motion for the temporary restraining order.

The crypto exchanges pushed back against the claims in their response to the motion, arguing the SEC hadn't conclusively proven they listed any securities and saying the regulator hadn't shown any proof supporting an emergency motion.

Securities vs. commodities

Judge Jackson also dove into the foundational question at the heart of the suit: What makes a crypto asset a security, and is it a commodity if it isn't a security?

Though the judge asked some elementary questions about the issue, she was not satisfied with the answers.

Near the opening of the hearing, the judge asked SEC attorneys to distinguish between a "crypto asset" and a "crypto asset security."

SEC attorney Matthew Scarlato told the judge that the regulator had provided several examples of cryptos it believed were securities in the broader complaint, but was also reserving the right to assess the rest of the tokens on the exchanges later.

The judge asked the SEC (and later Binance) whether the other cryptocurrencies were commodities.

"The ones they you're not calling securities, what are they?" she asked, diving into the heart of an issue that's vexed the crypto industry for years.

She later asked Matthew Martens, an attorney representing Binance.US, if BNB is a commodity since the company had argued it was a security.

"It is a crypto asset," Martens said.

"What is that? No one wants to tell me," the judge noted.