Binance.US, the US arm of cryptocurrency exchange Binance, suffered severe consequences 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 revenue, according to an executive at the company.
In a deposition shared in a court filing on March 5, Binance.US Chief Operating Officer Christopher Blodgett stated, “To banks, we’re radioactive.” He explained that banks are hesitant to work with Binance.US due to the risk of facing subpoenas from the SEC. Blodgett added that the company’s banking partners withdrew support, leaving customers unable to transact in US dollars, and the company struggled to find new partners, severely impacting the business.
Following the SEC’s legal action, Binance.US experienced a significant outflow of assets, with around $1 billion leaving the platform. The company was forced to lay off over two-thirds of its workforce, totaling more than 200 employees, as its revenue plummeted by over 75%, according to Blodgett.
The SEC accused Binance, Binance.US, and founder Changpeng “CZ” Zhao of selling unregistered securities and engaging in wash trading to inflate trading volumes. The SEC also alleged that user funds on the exchange were commingled in an account linked to Zhao’s company, Merit Peak.
The lawsuit not only had financial repercussions for Binance.US but also damaged its institutional trust. Blodgett revealed that the exchange had fewer than five market makers, down from over 20 before the lawsuit.
After the SEC filed a temporary restraining order to freeze Binance.US’ assets, there were concerns that customer funds would be transferred offshore. However, a judge dismissed the order. Binance, Binance.US, and Zhao admitted to violating money laundering and terrorism financing laws and settled with the Department of Justice, Treasury, and the Commodity Futures Trading Commission for $4.3 billion in November. Despite the settlement, the SEC continues to pursue its charges against the exchange and is actively seeking evidence.
Zhao pleaded guilty to a money laundering charge and is awaiting a sentencing hearing on April 3, where he could face up to 18 months in prison.
In light of these events, investors may question the deposit risk associated with cryptocurrency exchanges and how they handle customer funds.