SEC sought freeze order on Binance, despite no evidence of US customer fund movement.

The U.S. Securities and Exchange Commission (SEC) faced difficulties justifying their request for a financial freeze order against Binance.US, during pretrial proceedings on July 15. The SEC lawyers were unable to provide sufficient evidence to support their allegations against Binance. Judge Amy Berman Jackson expressed frustration with the SEC’s lack of clarity, highlighting discrepancies in their documents supporting the injunction request. The SEC’s request for an asset freeze was seen as part of their larger attempt to portray Binance as fraudulent and in violation of U.S. securities law. However, their failure to convince the U.S. Department of Justice to file parallel criminal charges against Binance or CEO Changpeng Zhao suggests that the SEC may have overreached its mandate. The SEC’s actions have raised concerns from other branches of government, who are displeased with their tactics.

Binance has claimed that Merit Peak is not in possession of customer funds, and is merely a tool for Zhao’s personal wealth and trading. Even if true, this is still questionable in terms of ethics, as it could mean that CZ was trading against his own customers. However, Judge Jackson did not seem to consider this relevant to the question of Binance.US and the safety of customer funds held there. During the hearing, Jackson also mentioned arguments made by Binance that the SEC had “no evidence” of a risk to US customer funds.

Pre-crime injunction

Instead, the SEC argued that the Merit Peak transactions and other international transfers were cause for concern regarding Binance.US customer assets. They also expressed concerns about who had real control of certain multi-signature wallets holding Binance.US assets.

In other words, the SEC seemed to argue to some extent that the freeze was necessary because there was a possibility of misuse of Binance.US customer funds, rather than clear evidence that it had or would happen.

However, Judge Jackson appeared skeptical of this “Minority Report”-style “pre-crime” argument. Ultimately, she denied the SEC’s request for an emergency asset freeze, which was an early setback in a potentially lengthy trial. More importantly, Jackson at times seemed to believe that the SEC’s lawyers were attempting to mislead or confuse her.

After Scarlato’s explanation of Merit Peak, she seemed exasperated and repeated, “I’m still trying to get to the money coming from the US platform customers.”

This series of exchanges in the courtroom is significant for Binance’s case and may indicate that the SEC’s case is not entirely solid. More importantly, it provides insight into the SEC’s reasoning and mindset regarding their broader crackdown on cryptocurrency, which now includes not only Binance but also US-based Coinbase, the stablecoin Paxos, and other targets.

The courtroom drama reflects a broader set of indicators that the SEC has gone too far with their ongoing crypto crackdown, particularly in political terms. While the agency may be legally justified in terms of securities law, the argument that their approach is generally flawed has begun to take hold. Republican lawmakers have quickly rallied against it, as was evident in a recent House hearing where congressmen grilled a witness from Prometheum, the SEC’s poorly chosen “regulated crypto exchange.”

See also: The SEC Is Fighting the Last War | Opinion

More significantly, however, there are rumors from sources close to Capitol Hill that an increasing number of Democrats are beginning to question the SEC’s approach.

This early exchange in the Binance prosecution highlights the deeper issue with the SEC’s entire agenda: it is based on a presumption of guilt and criminality, not just for one organization, but for an entire technology.

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