The legal woes faced by Binance.US, the American arm of the global cryptocurrency exchange Binance, have resulted in significant disruptions to its operations, including severe staffing cuts and challenges with banking relationships.
Since the filing of a lawsuit by the United States Securities and Exchange Commission (SEC) in June of last year, accusing Binance, Binance.US, and founder Changpeng Zhao of various violations including selling unregistered securities, the company has faced a tumultuous period. Christopher Blodgett, Binance.US’s Chief Operating Officer, detailed the repercussions of the SEC’s lawsuit in a deposition in December, shedding light on the adverse effects it had on the company.
Blodgett highlighted the damage inflicted on the company’s relationships with banking institutions, characterizing Binance.US as “radioactive” to banks due to the association with the SEC lawsuit. This has made it increasingly difficult for the company to execute transactions in U.S. dollars, hampering its day-to-day operations significantly.
The fallout from the legal battle extended beyond banking relationships, impacting the company’s market position and staffing. Blodgett revealed a substantial decrease in customer assets on the platform following the SEC’s legal action, amounting to approximately $1 billion. The loss of banking support, coupled with challenges in finding new banking partners, has effectively strangled the business, as described by Blodgett.
Prior to the lawsuit, Binance.US collaborated with over 20 market makers, but this number has dwindled to less than five, signaling a loss of institutional trust. Moreover, the SEC’s accusations against Binance.US, including allegations of wash trading and commingling user funds, have further exacerbated the regulatory scrutiny faced by the company.
While Binance, Binance.US, and Zhao reached a settlement with various government agencies in November, agreeing to pay $4.3 billion for violating money laundering and terrorism financing laws, the SEC continues its investigation and maintains its charges against the cryptocurrency exchange. Zhao is scheduled for a sentencing hearing on April 3, facing a potential sentence of up to 18 months in prison after pleading guilty to a charge of money laundering.
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