Binance U.S. clients are at “significant risk” of losing $2.2 billion unless a freezing order is in put place, SEC says

The situation with Binance is getting dire by the day. Just less than 48 hours after the U.S. Securities and Exchange Commission (SEC) charged Binance and founder CZ with securities law violations, federal regulators are now raising other concerns that the $2.2 billion worth of U.S. customer assets held by Binance is at “significant risk” of being stolen by founder Changpeng Zhao unless a freezing order is put place.

In a filing Tuesday night, US regulators urged for a freezing order to be put in place to mitigate this risk. The SEC lawyers filed an emergency motion earlier, highlighting the potential for capital flight and requesting a judge to repatriate and freeze U.S. customer assets to prevent unauthorized transfers by Zhao or Binance entities. The SEC lawsuit accuses Binance and Zhao of engaging in the unregistered sale of securities and commingling investor funds with their own,  CNBC reported.

The new filing described Changpeng Zhao (also known as CZ) as a “foreign national who has made overt his views that he is not subject to the jurisdiction of this Court.”

The Securities and Exchange Commission (SEC) lawyers have alleged that two Binance U.S. subsidiaries, BAM Trading and BAM Management, which were controlled by CZ, the founder of Binance, have already generated “illicit gains” of at least $420.4 million through profits and venture fundraising.

According to the filing, years of communication between the SEC and Binance revealed that Binance.US, which doesn’t have an official headquarters, couldn’t provide clear information about who controlled customer assets. The SEC also claimed that CZ and Binance had unrestricted control over customer assets worth billions of dollars.

CZ’s attorneys argue that he is not subject to U.S. law, despite his involvement and beneficial ownership in U.S. companies and bank accounts that transferred billions of dollars to holding companies based in the Swiss and British Virgin Islands, as stated by the SEC.

However, the SEC argues that federal law and precedents establish the court’s jurisdiction over both CZ and Binance, stating, “There is no doubt that the Court has personal jurisdiction over all Defendants.”

While Binance’s U.S. branch asserts that it maintains control over a significant portion of its technology and financial infrastructure, the SEC contends that CZ’s ultimate control puts investor assets at risk unless immediate action is taken.

“Given the history of Zhao’s and Binance’s open desire to avoid U.S. regulation and oversight, and their surreptitious control over BAM Trading and commingling of and movements of BAM Trading assets through a web of Zhao-controlled entities outside of the United States, there can be no assurance that BAM Trading employees are not influenced by Zhao or Binance today,” the filing said.

Federal regulators are also requesting the court allow them to serve Zhao by emailing his lawyers, saying his “pattern of geographical elusiveness” makes it difficult to identify his exact residence or whereabouts. Zhao is reportedly a resident of the UAE.

It’s also worth noting that in March, Binance and Zhao faced a lawsuit filed by the U.S. Commodity Futures Trading Commission. The lawsuit alleged that they were operating an “illegal” exchange and had a “sham” compliance program, further adding to the legal challenges faced by the company.