SEC vs. Binance: How safe are assets on Binance?

New allegations are being made in the SEC's lawsuit against Binance. At the center is the alleged commingling of customer funds.

The courtroom drama between U.S. financial regulator SEC and world's largest crypto exchange continues. A central question: how safe are the assets on Binance? During the hearing on Sept. 18, 2023, new explosive allegations of misappropriation of customer funds surfaced.

The SEC already gave questionable examples of commingling and misappropriation of customer funds at Binance.US in its indictment. Court documents from yesterday's hearings contained new allegations. According to them, the exchange's chief executive, CZ, borrowed $250 million from one of his companies, paid with his own stablecoin, BUSD. He then sent most of it to BAM Trading, the parent company of Binance.US. Moreover, according to the SEC, an auditor reportedly had great difficulty certifying that the assets were fully backed.

[It] was difficult and sometimes impossible to request wallet balances en masse. This made it very difficult to ensure that the company was fully covered at certain times.

Binance custodian in the firing line

Also, the company Ceffu appears to have come under fire. It was founded in 2021 and is responsible for custody of Binance's assets. According to the SEC, it was registered under the name Bifinity in Lithuania. According to the SEC, CZ and two other employees would be the sole owners. This would violate an agreement between Binance and the US financial regulator, according to which Binance.US must be independent of Binance and custody is ensured locally in the US.

At the hearing, the judge rejected the SEC's request for full access to the crypto exchange's records. But Binance must disclose more information about its custody and cooperate better with financial regulators. He was "not very convinced that BAM Trading has full control over the assets."

On Twitter, VC investor and expert Adam Cochran wrote of the new allegations, "Binance is not solvent." This is the only way he can explain the auditor's opaque chaos and problems.

Last week there were mass layoffs at Binance.US. More than a hundred employees had to leave. Some senior executives stepped down, including the CEO, chief legal officer and risk officer.

Binance also faces court action before the CFTC, the U.S. Federal Trade Commission. In addition, rumors have been circulating for months that the Department of Justice will soon take action against the exchange. The next hearing will take place on Oct. 12, 2023.