US regulators object to Binance deal as crypto regulation ramps up

The US Securities and Exchange Commission has intervened in a deal that would see Binance US buy the assets of a bankrupt crypto lender, in a sign of how American authorities are stepping up their scrutiny of the digital asset exchange.

Wall Street’s regulator filed an objection to Binance US’s proposed $1 billion acquisition of assets belonging to Voyager Digital, which fell into bankruptcy last summer as a sharp downturn in token prices prompted the collapse of several once-prominent crypto companies.

Binance, the world’s biggest digital asset exchange, and its global affiliates have come under increasing focus among crypto investors and regulators after the collapse last year of FTX consolidated the crypto empire’s leading role in the industry.

The SEC objection to the Binance US deal comes as the collapse of FTX raises concerns over the opaque relationships between linked crypto entities. Binance says its US affiliate licenses its exchange technology but maintains that they are independent businesses.

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The crypto industry has suffered a tumultuous 12 months, capped in November by the failure of marquee exchange FTX. The SEC’s objection to Binance US’s proposed deal with Voyager shows how authorities are stepping up oversight of the sector even as many of the industry’s leading assets remain unregulated.

The SEC said there was insufficient information to show how Binance US would “consummate a transaction of this magnitude”. The regulator also noted insufficient detail about the nature of Binance US’s business operations after the proposed acquisition, as well as about how the debtors intended to secure customer assets. The SEC said it expected Binance US’s counsel to file an updated disclosure.

A spokesperson for Binance US said a “diligent review of the deal is to be expected and welcomed”, and Binance US will work with the relevant parties to provide any requested information. “We look forward to completing the transaction,” the spokesperson added.

In a sign of how the crypto industry has come under increasing pressure in recent weeks, outflows from the main global Binance exchange hit $6 billion in a matter of days last month. Binance chief executive Changpeng Zhao has sought to reassure customers, saying there was “no amount of withdrawals that would put [Binance] under pressure”.

Accounting firm Mazars – which previously produced “proof of reserves” reports for Binance – has also said it would pause its activity in the crypto sector due to “the way these reports are understood by the public”.

Industry participants are also keeping close tabs on the situation at crypto broker Genesis, which halted withdrawals at its lending unit in November. It said this week it needed more time to find a solution for its financial difficulties.

[ Crypto boom turns to bust as regulators circle ]

The group owes customers of exchange Gemini – which used Genesis as a partner in its lending programme – some $900 million. Gemini co-founder Cameron Winklevoss accused Barry Silbert, chief executive of Genesis’s parent company Digital Currency Group, of “bad faith stall tactics” in an open letter on Monday. In response, Silbert said DCG had sought to communicate with Gemini in late December but had not received a response. – Copyright The Financial Times Limited 2023