September 19, 2023 at 16:10 GMTModified date: September 19, 2023 at 16:10 GMT
September 19, 2023 at 16:10 GMT

Binance and SEC in heated fight over role of Lithuania-based custodian Ceffu

Binance CEO CZ has denied SEC allegations that the crypto exchange’s US branch is using the wallet custodian Ceffu.

Binance and SEC in heated fight over role of Lithuania-based custodian Ceffu

Binance and the US Securities and Exchange Commission (SEC) are in heavy disagreement on the crypto exchange’s relationship with Ceffu, a wallet custodian. 

Changpeng ‘CZ’ Zhao, CEO of Binance, has denied claims by the SEC that its US branch is using Ceffu to store customer funds.

He posted on social media app X: “For the record. Binance US does not use, and have NEVER used Ceffu or Binance Custody. You can’t just make this stuff up.”

The tweet follows the SEC’s latest court filing that claims wallet provider Ceffu is indeed “Binance-related”. 

The SEC are eager to find out how customer assets are handled at Binance.US, but says the holding company BAM has not been cooperative. Meanwhile, Binance has argued the SEC is conducting an unreasonable “fishing expedition”. 

The Ceffu debate 

The SEC’s lawsuit against Binance.US, Binance Holdings, and its founder Changpeng ‘CZ’ Zhao dates back to June 2023. The charges alleged that Binance was operating an unauthorised securities exchange. 

As the legal processes move forward, the SEC’s aim is to ensure that American users’ funds remain within US jurisdiction.

The SEC’s are concerned this may be jeopardised by the potential association between Ceffu and Binance.US, as the agency is hesitant about a foreign company overseeing American customer assets. 

Ceffu is registered in Lithuania and initially started operations in December 2021 as Binance Custody. But it underwent a rebranding in February 2023. Despite its name and logo evoking similarities with Binance’s initial branding, it’s now claims independence from the crypto exchange.

Documents from the SEC, disclosed in September, highlight fears that there is a connection between Binance.US’s and Ceffu, which wouldviolate prior legal arrangements. These agreements stipulate that only US-based staff should have access to customer funds, which prohibits Binance.US from employing entities connected to Binance or CZ for custody services. 

However, CZ claims that Binance.US is not and has never used Ceffu. 

Who uses Ceffu?

Clarifying its position, Binance mentioned in a recent court filing that BAM has full control over the customer assets, rather than third party software. 

It said: “More importantly, none of the SEC’s ‘concerns’ suggest that BAM’s customer assets are at risk of loss or dissipation.”

Ceffu recently announced that its services do not extend to US operations. Moreover, it “strongly rejects” the SEC’s assertion of offering third-party wallet software to Binance.US.

Any claim of Ceffu being supplied or proposed by Binance or Binance Holdings is “factually incorrect”, a Ceffu rep told CoinDesk. 

The spokesperson said “Ceffu is not a Binance entity.” They also noted that even before its rebranding in 2023, Ceffu always maintained operations distinct from Binance.

SEC inspection request denied

The SEC faced a setback on 18 September in its efforts to gain deeper insights into Binance.US’s software. 

Amidst the ongoing Ceffu debate, the SEC asked the federal magistrate judge for permission to inspect the technological infrastructure of Binance.US. The regulator also wanted the company to provide other relevant information.

However, Federal Magistrate Judge Zia Faruqui was not swayed. During Monday’s hearing, Judge Faruqui said that he was not “inclined to allow the inspection at this time”. 

He advised the SEC to refine its requests and to engage further with additional witnesses.

The SEC has previously complained it hasn’t received necessary documents or depositions from witnesses to examine Binance’s business model.

Judge Faruqui said at Monday’s hearing: “At some point we are going to have to bite the bullet and move on with the case.”