The US Securities and Exchange Commission failed on Monday to convince a federal magistrate judge to immediately let officials delve into Binance.US’s software, a setback for the Wall Street regulator in its case against the crypto-trading platform.
The SEC says that it has been struggling to get information from Binance.US since it sued the American exchange, along with its international affiliate Binance Holdings Ltd. and its Chief Executive Officer Changpeng Zhao in June. The regulator on Monday asked a federal magistrate judge to allow an inspection of Binance.US’s technological infrastructure, and to force the company to share other requested information.
But, federal Magistrate Judge Zia Faruqui said during a Monday hearing that he wasn’t “inclined to allow the inspection at this time.” Instead, he said, the SEC should come up with more tailored requests and speak with additional witnesses.
The magistrate’s decision not to grant the SEC immediate access is at least a temporary procedural loss for the regulator in one of its highest-profile crypto cases. The agency said in a Monday filing that Binance.US has handed over fewer than 250 documents and offered just three witnesses to depose.
The SEC alleged in June that Binance and Binance.US, which has been billed as a separate entity intended to serve American clients, weren’t actually independent and broke multiple American securities rules. The regulator more recently has argued that Binance.US’s technology should be inspected to better understand possible links to the global exchange.
Read More: SEC Sues Binance and CEO Zhao for Breaking Securities Rules
Lawyers for Binance.US have called the SEC’s search for documents a “fishing expedition” and “overbroad.” Binance.US has also resisted offering up its top executives to be deposed, arguing that they don’t have firsthand knowledge about the security and custody of customer assets.
Meanwhile, trading volume on Binance.US is evaporating as the cryptocurrency exchange’s fight with US regulators intensifies. After the SEC complaint was filed in June, Binance.US lost it banking support, suspended US dollar deposits, and began a series of layoffs. Former Binance.US Chief Executive Officer Brian Shroder departed last week, when the company laid off a third of its remaining workforce.
Read More: Binance.US Trading Is Down 98% as SEC Dispute Heats Up
Matthew Martens, a lawyer at WilmerHale who is representing Binance.US, said at the hearing that the company has responded to every “targeted request” by the SEC. “What we are not going to respond to is the foolishness of document requests that came from the government here,” said Martens.
The dispute over the SEC’s request for expedited discovery is early in its case against Binance.US. The regulator says it is needed to ensure that the American platform has control over customer assets while the litigation plays out.
The SEC and Binance.US reached an agreement to not completely freeze the company’s assets after the regulator sued the firm. As part of that deal, Binance.US can only spend money to cover the costs of running its business. Since then, the SEC has complained it hasn’t gotten necessary documents, or been able to depose critical witnesses.
“At some point we are going to have to bite the bullet and move on with the case,” Faruqui, the magistrate judge, said during Monday’s hearing.
--With assistance from Olga Kharif and Misyrlena Egkolfopoulou.