The U.S. Securities and Exchange Commission (SEC) has filed a request to the court to consider new evidence in its case against Binance and its former CEO, Changpeng Zhao (CZ). The SEC argues that the recently unsealed documents of Binance and CZ’s plea agreements with other agencies support the continuation of the case. This filing comes as Binance and CZ are attempting to have the case dismissed. The SEC wants the court to acknowledge the admissions made by Binance and CZ in their plea agreements with the Financial Crimes Enforcement Network (FinCEN) and the Department of Justice (DOJ).
The Strength of the Evidence
According to John Reed Stark, the former chief of the SEC’s enforcement division, the unsealed documents provide substantial evidence for the SEC’s lawsuit against Binance. Stark describes these documents as a “treasure trove of fresh and comprehensive Binance-related inculpatory evidence.” The SEC is urging the court to accept the facts presented in the plea agreements as true, without requiring further evidence. This strategy is aimed at solidifying the SEC’s case against Binance.
Undermining Binance’s Motion to Dismiss
Binance and CZ argue in their motion to dismiss that they were not provided with “fair notice” regarding their alleged violations of regulations. However, the DOJ plea agreements reveal that both Binance and CZ admitted to willfully violating laws. This admission directly supports the SEC’s allegations. Furthermore, the plea agreements disclose that Binance and CZ intentionally targeted and served millions of customers in the U.S., with a significant portion of their users located in the country. These admissions weaken Binance and CZ’s motion to dismiss.
The unsealed documents also shed light on the significant monitoring and oversight obligations imposed on Binance as part of its plea agreement. Stark believes that fulfilling these extensive compliance requirements could cost Binance “tens if not hundreds of millions of dollars.” He even suggests that this level of oversight could potentially lead to the demise of Binance. Stark emphasizes that Binance’s plea agreement is unlike any other seen before, making it a unique case in terms of robust governmental oversight. Compliance with the agreement requires Binance to cover all associated costs.
The Role of the Independent Monitor
As part of the plea agreement, Binance has agreed to retain an independent monitor for a minimum of three years. The monitor will have access to all documents, records, and resources related to Binance’s operations. This includes access to current and former employees, agents, intermediaries, consultants, representatives, distributors, licensees, contractors, suppliers, and joint venture partners. Stark compares this monitoring requirement to “installing bodycams on every member of a global criminal drug cartel, and making the cartel bear the cost” of the surveillance.
The SEC’s request for judicial notice and the evidence presented in the plea agreements indicate that the regulatory scrutiny surrounding Binance is intensifying. Binance’s attempt to dismiss the SEC’s case has faced a significant setback due to these admissions. The plea agreements highlight Binance’s awareness of its actions and its intention to serve the U.S. market extensively. Compliance with the imposed monitoring and oversight requirements will be costly, potentially placing a considerable burden on the exchange. The outcome of this case will likely have significant implications not only for Binance but for the broader cryptocurrency industry as well.
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