SEC resorts to rare tactic, files secret motion against Binance

• The US SEC has filed a sealed motion against Binance Exchange.
• The move allows the regulator to file sensitive or confidential information with a court and for it to be kept off any public record.
• Experts speculate the SEC filing likely relates to an existing US DOJ investigation of Binance.

The US Securities and Exchange Commission (SEC) has resorted to a rare tactic, filing a secret motion against Binance. It comes as the financial regulator continues in its clampdown against crypto exchanges, with Binance and its CEO Changpeng Zhao (CZ) falling victim to charges of securities laws violations, asset commingling, and diverting billions of Dollars of customer funds to a third-party entity owned by CZ.

SEC files sealed motion against Binance

The US SEC has filed a sealed (secret) motion for leave, a rare tactic often used in court when either the prosecution or defendants want to keep documents under seal. The court allows such a move to protect the integrity of sensitive or confidential information so that it is not in the public record while it is filed.

Part of the sealed submissions include “exhibits, a proposed order and a declaration of SEC trial attorney Jennifer Farer,” according to Former Chief SEC Office of Internet Enforcement, John Reed Stark.

What’s Up With The Secret U.S. SEC Motion Relating to Binance?

In the U.S. SEC/Binance litigation, the U.S. SEC has filed a sealed motion for leave to file documents under seal, according to an SEC court filing late yesterday. Filing a court document “under seal” allows… pic.twitter.com/cmx6gdh2so

— John Reed Stark (@JohnReedStark) August 29, 2023

Filing a sealed motion is common for criminal enforcement agencies, but considering the SEC is a civil authority, the move is rather rare. Civil motions are often filed openly, with the public having easy and open access because civil matters ideally border along public interest, which is why the public is allowed participation.

On other matters, the SEC has made it open whenever it files motions against players in the crypto sphere, with intentions for resounding regulations so that industry players will not violate them in the future. Making it public could jeopardize ongoing criminal investigations or prosecutions led by the US Department of Justice (DOJ).

Notably, the DOJ has been considering pursuing fraud charges but opted to use other means out of fear of implications to customers, like what happened with the FTX exchange.  

U.S. PROSECUTORS WORRY BINANCE CHARGES COULD CAUSE RUN ON EXCHANGE – SEMAFOR

— *Walter Bloomberg (@DeItaone) August 2, 2023

As such, the alternative could mean convening a grand jury, which is usually secretive per the law. An excerpt from the DOJ’s manuscript on the matter reads:

To guarantee the secrecy of grand jury hearings, Federal Rule of Criminal Procedure 6(e) prohibits most persons present during the proceedings from disclosing what transpired inside the grand jury room; however, the proscription does not apply to witnesses.

Also, the DOJ could have found turncoats or whistleblowers against Binance – hence the use of tactics that would not compromise the case it is building.

Experts speculate that the SEC’s effort to avoid compromising the integrity of the DOJ’s case could be a prelude to an impending indictment against Binance. On this theory, Stark thinks:

Binance will likely NOT oppose the US SEC sealing motion for fear of making public potentially inculpatory evidence or potentially scathing criminal allegations relating to Binance’s activities.

What it could mean if Binance responds

Binance opposing the request to keep the motion sealed would increase the likelihood the SEC’s decision is rooted in a desire to protect witness identity, which, according to Stark, the exchange would rather have exposed.

…and Binance would prefer that the world know the names of any of Binance’s accusers.

Regardless, Stark maintains that this is the first time he has encountered a sealed motion across his longstanding history with the commission.

As Binance continues to navigate regulatory pressure, users continue to bear the brunt. Recently, its users in Belgium were compelled to shift to the Poland exchange due to regulatory constraints. The exchange has also filed court orders seeking protection against the SEC, citing unduly burdensome requests.

With jurisdictions strangling its operations, Binance is casting its eyes on friendlier grounds, with Japan featuring among the choice options. 

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