Unsealed Filings Expose Binance.US Auditor’s Struggle To Verify Full Collateralization

In a recent development, the United States Securities and Exchange Commission (SEC) unsealed court filings related to the ongoing litigation against Binance.US and BAM Management US Holdings Inc. 

The filings provide insights into the defendants’ responses and objections to the plaintiff’s first requests to produce documents and inspection.

Doubts About Binance.US Full Collateralization

The court filings reveal that the SEC has expressed reservations about Binance.US’s ability to ensure full collateralization of customer assets at certain critical junctures. 

This finding was based on an audit conducted by Binance.US’s auditor, who reportedly encountered significant challenges verifying the platform’s complete collateralization. The SEC’s concerns highlight potential risks to investors and the need for increased transparency and regulatory oversight in the cryptocurrency industry.

Collateralization is a crucial aspect of cryptocurrency trading platforms, ensuring that reserves adequately back customer assets. Maintaining full collateralization is essential for the security and stability of the platform, as it guarantees that customers’ funds can be readily accessed and withdrawn when needed. 

Any shortcomings in collateralization practices could expose users to potential losses and undermine market confidence.

The unsealed court filings also reveal that the SEC has requested extensive documentation and inspection of Binance.US’s internal processes and records. 

However, Binance.US has raised objections to several aspects of the SEC’s requests. The platform has argued that certain demands are “overly broad, unduly burdensome, or duplicative” of previous discovery requests and subpoenas in the ongoing litigation. 

Furthermore, BAM’s (Binance.US parent company) legal counsel has expressed readiness to discuss with the plaintiff to resolve any disputes concerning the requests’ meaning, scope, relevance, or BAM’s responses and objections.

Objections Raised

BAM raises objections regarding preserving and producing electronically stored information (ESI) and documents not stored on active systems but on backup tapes or other media no longer in their possession, custody, or control. 

They claim that such ESI is not reasonably accessible and would impose significant search, preserve, and access costs. BAM asserts that they are not obligated to search such sources in response to the requests.

In addition, Binance.US asserts the protection of various privileges, including the attorney-client privilege, work-product doctrine, joint-defense or common-interest privilege, and applicable domestic or foreign laws. 

They maintain that the requests seek information or documents covered by these privileges or other protections, and their response should not be construed as a waiver of those privileges.

The company also contests requests seeking the production of trade secrets or information that is confidential, proprietary, commercially sensitive, or competitively significant to them or any affiliates. They argue that the disclosure of such information could have adverse effects on their business operations.

It is important to note that BAM’s responses and objections to the specific requests have not been detailed in the unsealed court filings. However, the filings emphasize that BAM intends to withhold responsive materials based on its objections to each request, except where indicated otherwise. 

Despite their objections, BAM expresses a willingness to engage in discussions with the plaintiff regarding the requests.

These disclosures raise important questions regarding the scope of document production, the burden imposed on the defendants, and the applicability of various privileges and protections. As the litigation progresses, further developments are expected to provide more insights into the case.

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