The U.S. Securities and Exchange Commission (SEC) has recently requested the court to take judicial note of newly unsealed documents regarding Binance, the popular cryptocurrency exchange, and its former CEO Changpeng Zhao. The regulatory watchdog claims that these documents, which detail Binance and Zhao’s plea deals with other agencies, provide substantial evidence supporting the SEC’s case and argue for the lawsuit’s continuation. The SEC’s filing comes in response to Binance and Zhao’s attempt to dismiss the case. The SEC specifically asks the court to consider the admissions made in Binance and Zhao’s plea agreements with agencies such as the Financial Crimes Enforcement Network (FinCEN) and the Department of Justice (DOJ).
John Reed Stark, the former chief of the SEC’s enforcement division, asserts that the unsealed documents significantly strengthen the SEC’s lawsuit against Binance. Stark describes the documents as a “treasure trove of fresh and comprehensive Binance-related inculpatory evidence” and emphasizes the SEC’s desire for the court to accept the facts presented in the plea agreements as undeniable truth, without requiring further evidence. Stark adds that these newly revealed facts and admissions support the SEC’s arguments opposing Binance’s motion to dismiss.
In their motion to dismiss, Changpeng Zhao and Binance argue that they were not given “fair notice” of the alleged regulatory violations. However, the DOJ plea agreements reveal that both Zhao and the exchange admitted to willfully violating laws. This admission aligns with the SEC’s allegations and weakens Binance and Zhao’s “fair notice” defense. Moreover, the plea agreements disclose that Binance and Zhao intentionally served millions of customers in the U.S., with over 23% of its user base located in the country. This admission further diminishes Binance and Zhao’s efforts to dismiss the case.
The unsealed documents shed light on the extensive monitoring and oversight that Binance agreed to as part of its plea agreement. John Reed Stark warns that meeting these rigorous compliance obligations could result in significant financial burdens for Binance, potentially costing “tens if not hundreds of millions of dollars to implement and execute.” The comprehensive oversight outlined in the agreement is unparalleled in its scope, and Stark points out that such demanding measures may even spell the end for Binance. He notes that no other mega-crypto firm or financial institution has ever undertaken a plea agreement with the DOJ/FinCEN that requires oversight as exhaustive and all-encompassing as the one Binance agreed to.
As part of the plea agreement, Binance has committed to retaining an independent monitor for a minimum of three years. This monitor will have unrestricted access to all documents, records, and resources, including current and former employees, agents, intermediaries, consultants, representatives, distributors, licensees, contractors, suppliers, and joint venture partners. Stark compares these extensive monitoring requirements to the enforcement of body cameras on every member of a global criminal drug cartel, with the associated costs borne by the cartel itself.
The recently unsealed documents related to Binance and its former CEO’s plea agreements provide compelling evidence for the SEC’s ongoing lawsuit against the exchange. These admissions weaken Binance and Changpeng Zhao’s defenses, particularly regarding their claim of lacking “fair notice” of violations. Additionally, the extensive compliance obligations and oversight imposed by the plea agreement carry significant financial implications, potentially jeopardizing the future of Binance. As the legal proceedings unfold, the impact of these newly revealed documents will undoubtedly play a significant role in shaping the outcome of the SEC’s case against Binance.