SECURITIES AND EXCHANGE COMMISSION v. BINANCE HOLDINGS LIMITED et al Document 20: Declaration, Attachment 3

District Of Columbia District Court
Case No. 1:23-cv-01599-ABJ-ZMF
Filed June 6, 2023

DECLARATION by SECURITIES AND EXCHANGE COMMISSION re [8] MOTION for Leave to File Excess Pages filed by SECURITIES AND EXCHANGE COMMISSION. (Attachments: # (1) Exhibit A-81, # (2) Exhibit A-82, # (3) Exhibit A-83, # (4) Exhibit A-84, # (5) Exhibit A-85, # (6) Exhibit A-86, # (7) Exhibit A-87, # (8) Exhibit A-88, # (9) Exhibit A-89)(Scarlato, Matthew)

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Page 1 EXHIBIT A-83
Page 2 HO-
Brooks, Brian - Vol.
I.20211213.365944-HQ
12/13/2021 11:21 AM
Full-size Transcript
Prepared by:
HO-Tuesday, June 06, 2023
Page 3
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

In the Matter of:
)

)
BINANCE.US
File No. HO-13865-A
)

WITNESS:
Brian Brooks

PAGES:
1 through
PLACE:
Securities and Exchange Commission

100 F Street

Washington, D.C.
DATE:
N.E.
Monday, December 13,
The above-entitled matter came on for hearing,
via WebEx, pursuant to notice, at 11:21 a.m.

Diversified Reporting Services, Inc.
(202)467-
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Trading accounts?
A
Digital asset transfers to BAM Trading
accounts?

Q
The company's trading accounts.

A
I -- I can't recall that happening in the time

that I was there.
Q
Okay.
And was anyone at .com required to give

final signoff for digital asset transfers to third

parties?

A
I -- I'm not even sure I understand the

question.

engine, right, that has buyers and sellers, so third

party buyers and sellers would come and that was the

source of liquidity, so we, you know, we were not

filling orders for customers, we were matching customer

orders, so I don't -- I'm not sure I would even know how

to answer the question.

Q
I mean, BAM Trading operated a matching
So were sometimes BAM Trading paid for
services through digital assets?
A
So with only one caveat, I can't -- I can't
recall that ever happening during my tenure.
The one caveat is there was this group of

employees, basically the Shanghai based technology team,

who I learned right at the very end of my tenure, had

apparently received part of their compensation in BNB
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tokens, which were provided by Binance.com, which was a

source of real concern, you know, for the CFO and me

when we learned about that.

consider them to be third parties, that would be the one

caveat.

happening.

Q

Other than that, I'm not aware of that ever
Do you know who gave signoff to -- giving BNB
to these Shanghai based employees?

But -- and so if you
A
That long predated my arrival.
I have no
idea.

Q
Okay.

A
When did who receive the BNB?

Q
When did the Shanghai based employees receive

When did they receive the BNB?
the BNB?
A
Oh, I -- I don't know.
I mean, it was part of

their compensation.

payment or an annual bonus payment or what that was.

I say, that came to my attention two or three weeks

before I left the company, so I -- I mean, I wasn't even

aware of it until the very end.

Q
I don't know if it was a quarterly
As
Were the Shanghai based employees actual
employees of BAM Trading?
A
Well, they were employees of an entity that

had been set up for the purpose, called Boran.

understanding was that at one time they had been
My
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Binance.com employees and then when the Binance.US

separation happened in 2019, the decision was made to

hive off that group of 50 or so people and they would be

allocated full-time to Binance.US, so the question was

if you had a group of Shanghai based people working for

Binance.US, could they actually legally in China work

for Binance.US or did we have to set up a subsidiary

entity that would be where their employment was tied?

And often in multinational corporations that's the way

it works, is that there's a local corporate entity to

which those employees are assigned, so Boran was an

entirely dedicated to Binance.US workforce, paid for by

Binance.US, but housed within this entity called Boran.

Q
Where was Boran incorporated?

A
I don't know.
I don't know.
But I mean, my

assumption, it was a Chinese legal entity is my

assumption, but I -- I don't know.

Q
Was Boran wholly owned by BAM Trading?

A
I'm not sure.

Q
Okay.

A
I don't.

Q
How did you learn about Boran's structure?

A
Well, as I think I've just indicated, I don't
Do you know who would know?

know very much about Boran's structure, other than to

know, you know, sort of like there's Morgan Stanley,
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Morgan Stanley Asia, Morgan Stanley BD Amsterdam, et

cetera, et cetera, only to understand that its role in

the family of companies was like that; it was an

employee holding company set up for purposes of housing

these Chinese employees.

My focus, as you know from the document that

you have, was to migrate that entire function to an

onshore workforce.

enough to complete that task, but you know, that's

Obviously, I wasn't there long
essentially all I know about Boran.
Q
Did you learn about Boran outside of any

attorney/client communications or potential

attorney/client communications?

A
I mean, Boran was a commonly known thing at

BAM Trading, so I certainly talked about it with non-

lawyers, as well as with lawyers.

CFO was aware that there was an entity called Boran.

was the person who brought to my attention this BNB

arrangement, you know, late in my time there.

terms of whatever I would know about the corporate

structure or its rationale, that would have come from

counsel.
I mean, certainly the

Q
Okay.

A
Fifty or 60, something like that.

Q
Okay.
He
But in
How many people work for Boran?
We're going to go back to my original
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MR. HOLSCHER:
learned that from counsel --

THE WITNESS:

MR. HOLSCHER:

I'll counsel you, if you
Yeah, I understand.
-- I don't want you to impinge
upon any corporate attorney/client privilege.

THE WITNESS:
Right.
Yeah.
My knowledge of

it really doesn't have anything to do with that, it just

has to do with the way that the company got

bootstrapped.
So you know, the way companies typically

get started is somebody has to pay for it, so you know,

Hewlett & Packard used their personal checking account

in their mother's garage.

is CZ gave the company its first $10 million to get

launched, and that was done in the form of a note.
What happened with Binance.US

MS. HITCHENS:

BY MS. HITCHENS:

Q
Okay.
So I'm going to ask you about sort of making

distinctions.

distinction when reporting to Changpeng Zhao in their

capacity as a board director, as opposed -- his capacity

as a board director, as opposed to reporting to him in

other roles and capacities?

make a distinction?

A
Did you ever personality make any
Did you ever personally
I mean, I was 100 percent clear in my own mind
that -- I mean, until I quit, obviously, but I was
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percent clear in my own mind that I worked for a board

of directors.

strongly held the conviction that I did not work for

Binance.com, that nobody at Binance.com was my boss, and

that my role was to complete and highlight the corporate

separateness.

myself to be talking to him in his role as board chair

BAM Trading.

working at Fannie Mae I spoke to our board chair all the
I personally, you know, very, very, very
So when I talked to CZ, I considered
The same way that when I was, you know,

time and I considered myself to be talking to the board

chair, not to somebody else but the board chair.

Q
Now, sitting here today and looking back on

your time at the company, do you look back and think,

oh, maybe there were distinctions when I was talking to

him?

A
Possibly not the distinction that you're

thinking about.

certain point was CZ was the CEO of BAM Trading, not me.

What -- what became clear to me at a
That's what became clear at a certain point.
That

wasn't because Binance.com somehow controlled us, but

again, he owns the vast majority of Binance.com so I put

that aside.

It was more of an issue of if I'm Steve

Ballmer and he's Bill Gates, who's really running this

company, right?
So it was not that oh, gee, CZ's acting
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in a different capacity, it is more of do I have the

delegation and autonomy to carry out the mission of a

CEO as outlined in the mission document that you've

seen, right?

did not.

Q
And at a certain point I concluded that I
Can you just elaborate more why you're saying

now sitting here today you look back and think of him as

the CEO of BAM Trading?

A
Yeah.
I mean, look, he's obviously not

formally the CEO of BAM Trading, but in -- in my

judgment, right, there's a distinction between

management and governance.

governance.

means day-to-day execution of a board approved strategy.
The role of the board is
The role of the CEO is management, which

The time that the switch flipped in my mind

was, right, so I had joined the company with knowledge

of issues at the company and a belief that if those

issues could be fixed the company could be very

successful.

so working on those fixes, to the exclusion of almost

everything else.

core foundational things realigned.

And I spent the first, you know, 80 days or
The idea was we're going to get these
That was all fine.
And then at a certain day
I was -- a certain day late in that tenure, I was
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overruled on all of them.

previously agreed and had worked on for 80 days were

suddenly repudiated with no further discussion, and on

that day, I realized, huh, I'm not actually the one

running this company, and the mission that I believe I

signed up for isn't the mission.

realized that, I left.

All of the things that we had
And as soon as I
Q
Well, can you tell me a little bit about that
A
Sure.
day?

I would say -- you know, when I say it

was a day, it was really the space of about eight to
days.

know, which I described previously.

were going through the standard agenda items, how's the

fundraise going?

It began with our regular weekly meeting, you
And you know, we
Who are the board members going to be?
What about the tech migration?
And in this particular

call, the issue was why are doing a tech migration?
And

what I remember about that call is that it was late in

the evening, and I said -- I said the tech migration is

one of the most important risks in this company.

the reason the people believe that, you know, that in

fact the company's not an independent company, that in

fact it's controlled by, you know, somebody sitting in

China.

through all the reasons why we had agreed, and I
It's
This is a foundational strategy, and I went
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thing whose cost has already been fully amortized,

that's going to be a lot cheaper than if you have to

bear the cost of the initial startup expense yourself.

Q
So were the ongoing maintenance costs for the

Binance.US platform sort of less than Coinbase would

pay?

A
No idea.

Q
Okay.

A
I don't know.

Q
Okay.

Who would know?
Do you know if the cost would change
after the migration occurred?

A
The cost would likely go up.

Q
Okay.

A
Well, because the cost of operating one
And why is that?

platform is always lower than the cost of operating two

platforms, even if the two platforms are identical,

right.

United States to be the 50 people operating it.

labor costs are far higher than Chinese costs are, as

I'm sure that you know.

on we would be responsible for our own design decisions,

and that would cost money.

Q
So we would have to hire a team of people in the
U.S.
And you know, from that point
Were the service level agreements going to
sort of continue to exist after the migration?
A
Who can say that never happens, so I don't
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know.

Q

exist?

A

Do you know whether they were contemplated to
I mean, we never got close to that, so I don't
think that discussion was ever had.

Q
Okay.
So basically, under the service level

agreements, it sounds like .com was able to sort of run

with the same personnel the Binance.US platform and then

the .com platform; is that correct?

A
No.
So let me just start over for a second.

So first of all, you've now said service level agreement

several times; service level agreements just refer to

timetables and deliverables.

were.

agreement, not a service level agreement.

create common language here.

That's not what these
These were a services agreement and a licensing
Just to
We had 50 employees that were not Binance.com

employees, these were the Boran people we previously

talked about who were responsible for our technology.

One of the things that they would do is when Binance.com

had a new release of the code base for this or that or

the other, whatever the particular update was that they

might be releasing, it was the Boran employees who then

spend time, you know, essentially copying that code,

making such minor adjustments as were needed for that
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code to operate on our U.S., you know, front end

platform, and then would push it out to our customers.

So those were not Binance.com employees doing

that, they were Binance.US employees, Boran employees,

receiving updates from .com and then making those

changes for us.

Q
But those employees, though, did not work on
the matching engine; is that correct?
A
They didn't work on the matching engine,
that's right.
Q
So was .com using the -- you know, has its

matching engine folks, and they were also helping -- not

only helping to support the .com platform, ostensibly,

but those matching engine folks were also supporting the

.US platform?

A
engine.
No.
No, they were supporting the matching
We had a license --

Q
Okay.

A
-- that allowed us to use the matching engine.

Q
Okay.

Thank you for clarifying that.
So during your tenure at BAM Trading, did any

of the following happen: code changes occurred to the

Binance.US platform that were not announced to trading

personnel or to users?

MR. HOLSCHER:
I'm just going to counsel you
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Page 15
if you understand the technology of the question,

answer.

question.
If you don't, just do your best to answer that

THE WITNESS:
I mean, the answer to that I

have no idea.

But I'm not aware of any code that got pushed that

wasn't disclosed to people.

referencing to something in particular, I'm happy to

hear that, but I -- I don't know what that refers to.

I'm not sure I understand the question.
MS. HITCHENS:
I mean, if you're
These are just general

questions to understand what your experience was with

certain issues that could occur with the platform.

BY MS. HITCHENS:
Q
So would -- did any -- during your tenure, any

systemic issue with the code to the Binance.US cause

trading glitches or sort of larger scale trading issues

for users?

A
You know, I -- so I have a memory of there

being one or two occasions when the platform may have

been inaccessible for an hour here or two hours there

because of code updates and things like that.

remember anything more than that.

systemic, I don't recall anything there.

Q
Okay.
I don't
So when you say
Are you aware from your time there of
any sort of latency issues with the servers being used
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