Page 1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
Civil Action No. 1:23-
ERRATA SHEET
MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF
U.S. SECURITIES AND EXCHANGE COMMISSION’S
EMERGENCY MOTION FOR A TEMPORARY RESTRAINING ORDER
FREEZING ASSETS AND GRANTING OTHER RELIEF AND ORDER
TO SHOW CAUSE WHY RELIEF SHOULD NOT CONTINUE
The following changes have been made to the Memorandum (Dkt. No, 26). Changes
below are shown in underline/strikeout format to indicate added and removed language,
respectively.
Errata
No.
Page/ Section
Revision
The Binance.com Platform markets Corrects a citation error.
itself as offering over 350 crypto
assets for trading that is available to
customers in more than countries, among other crypto assetrelated services.1 Ex. 3-A
4/ I
5/ I
Basis for Revision
www.binance.com
He further explained that crypto
asset exchanges are “a way to
bypass the tightening regulation.”
Id.3Eva
Xioa, Three months after launch,
this unbanked crypto exchange made
$7.5m in profit, Tech In Asia
(December 1, 2017),
https://www.techinasia.com/cryptocurre
ncy-exchange-binance available at
https://archive.is/ayWPC.
Corrects citation error.Page 2 Errata
No.
Page/ Section
6/II
8/II
11/III. A.
12/III. B.
12/III. B.
12/III. B.
13/III. E.
Revision
Basis for Revision
Binance’s BNB ICO was marketed
and sold to investors globally, and
Binance imposed no restrictions on
U.S. investments in BNB or on the Corrects citation error.
ability of BNB investors to
immediately resell BNB to U.S.
investors. Steele Dec. ¶¶ 99-100.
Ex. A-83 at 48-(This discount was 50 percent in the
first year after the BNB ICO). Id. at Adds a pin citation.
11.
“Trade. Anywhere.” Ex. A-2320. Corrects a typographic error.
(i.e., price, quantity, and time
historical data for such trades). Ex.
A-24. Id.
Binance OTC (short for “over the
counter”) allows customers to
transact directly with Binance,
where Binance is the counterparty
trading in its own account. Ex. A23, at 5551.
Replaces a citation with Id.
Corrects a pin citation.
Since the launch of the
Binance.com Platform, Merit Peak
Limited (“Merit Peak”)—a Zhaoowned entity—provided OTC
Corrects a typographical error.
trading services on the Binance.com
Platform while it also provided
market making services on the
Binance.US Platform. Ex. A-5726.
For spot trading, Binance typically
charges between 0.015 percent and
0.2 percent of the nominal value of
transactions, depending on various
Corrects a typographical error.
parameters. Binance also charges
fees for withdrawals and for trading
on margin.8 Ex. Ahttps://www.binance.com/en/fee/trading
14/IV.
Among other things, Zhao and
Binance were aware that they were
subject to SEC regulatory actions
due to their “[i]ssuance of BNB to
Corrects a typographical error.
US Persons,” and “for [operating an]
unregistered securities brokerage.”
Ex. A-34, at BHL-SEC-BUSD02355367-53-8.7.Page 3
14/IV.
As Zhao admitted in June 2019, their
“goal” was “to reduce the losses to
ourselves, and at the same time to
Corrects a quotation translation.
make prevent the U.S. regulatory
authorities entities not troublinge us.”
Ex. A-38.
Today, the Binance.US Platform is
available in 46 U.S. states and 8 U.S.
territories, including in this District.
16/V.
18/V. B.
18/V. B.
18/V. B.
18/V. B.
19/V. B.
9. Ex. A-5; Binance.US Raises
$200M+ in Seed Round at a
Corrects a misplaced citation.
$4.5B Valuation,
https://blog.binance.us/binanceus-raises-200m-in-seed-round-ata-4-5b-valuation/(last accessed on
June 6, 2023).
https://support.binance.us/hc/en/us
/articles/360046786914 List of
Unsupported States
At the time of Binance.US Platform’s
launch, Binance personnel were
Corrects a typographical error.
primarily responsible for managing
trading. Ex. A-4657.
As reflected in the Master Services
Agreement, Binance is responsible
for maintaining, supporting,
developing, and implementing
Replaces citation with Id.
additional features and upgrades to
the Binance.US Platform, including
the platform’s crypto asset trading
services and features. Id. Ex. A-46.
Over time, Binance has transitioned
certain of its responsibilities and
functions to BAM Trading personnel
(sometimes by converting Binance
employees into BAM Trading
Duplicative citation.
employees), but nonetheless BAM
Trading and Binance personnel have
increasingly worked together to
provide and maintain the Binance.US
Platform’s exchange functions. Exs.
A-83 at 49-50; A-86 at 126-127, 136137, 150.
Customers can enter different order
types on the Binance.US Platform.
Corrects a typographical error.
Ex. A-2343.
The Binance.US Platform’s website,
API, and mobile apps allow
customers to enter orders, view
Corrects a typographical error.
account information, and otherwise
access the platform’s trading services
and other functions. Id. Ex. A-2Page 4 Sigma Chain AG (“Sigma Chain”), a
Swiss entity wholly owned and
controlled by Zhao and operated by
Corrects pin citation.
Binance employees, has been the sole
counterparty for the OCBS and
Convert services since they were first
offered in early 2020 and April 2021,
respectively. Id. at BTS00037799.4.
19/V. B.
19/V. B.
Customers can enter different
order types on the Binance.US
Platform. Ex. A-234.
19/V.B.
19/V. C.
The OCBS service permits customers Corrects a typographical error.
to exchange U.S. Dollars for crypto
assets, and the Convert service
permits the exchange of one crypto
asset for another of over 130 crypto
assets. Id. at BTS00037799. Sigma
Chain AG (“Sigma Chain”), a Swiss
entity wholly owned and controlled
by Zhao and operated by Binance
employees, has been the sole
counterparty for the OCBS and
Convert services since they were first
offered in early 2020 and April 2021,
respectively. Id. at BTS000377994.
To trade on the Binance.US Platform,
a user must create a Binance.US
account. Customers must deposit and Corrects pin citation.
maintain sufficient crypto assets or
U.S. Dollars to cover their orders
when placed. Id. at BTS000377983.
20 V. C./
25/VII.
26/VII.
26/VII.
26/VII.
The crypto assets are then held in
omnibus wallets. Ex. A-51 at
BTS00058742.
From On January 1, 2023 to March
31, 2023, $840 million was deposited
into eight Binance/Zhao-owned
companies, and $899 million was
withdrawn, from those accounts. Id.
Further, two foreign-domiciled Zhaoowned entities, Merit Peak and
Sigma Chain, commingled funds
from both Binance Platforms into
their U.S. bank accounts, along with
other funds. Verma Dec. ¶¶ 8(d)-(f),
12, & Attachment 2.
It served as an “over-the-counter,” or
“OTC,” trading firm on the
Binance.com Platform, Ex. A-51 at
BTS00058739. Ex. A-26,
It was also a “market maker” for
trading on the Binance.US Platform,
providing liquidity for crypto asset
trading on the platform. Id. at
Corrects a typographical error.
Adds a pin citation.
Clarifies a date.
Adds a pin citation.
Corrects a citation error.
Corrects a citation error.Page 5 BTS00058739. Ex. A-56.
26/VII.
Between 2019 and 2021, Merit
Peak’s account received over $billion. Verma Dec. ¶86(d).
Corrects a typographical error.
26/VII.
Further, Merit Peak received
approximately $6.3 billion in funds
from Binanced. Verma Dec. ¶12.
Corrects a typographical error.
29/VIII.B
30/VIII. B.
30/VIII. B.
30/VIII. B.
31/ VIII. B.
31/ VIII.B.
31/VIII. B.
31/VIII. B.
Duplicative of citation in fn.
But as of at least the end of May
2023, Zhao remained a signatory
on BAM Trading’s Prime Trust
accounts, which held Binance.US
Platform customer funds. Exs. A67; A-68 at BAM-WH-CORR034.
He concluded, the “biggest risk in
this company is we are highly
dependent on a bunch of technology
that sits in Asia.” Ex. A-83 at 74-74,
114. Ex. A-83A at 68, 114 and 120.
Zhao, however, refused BAM CEO
B’s attempts to migrate this
technology, leading BAM CEO B to
quit because, as he testified, “what
became clear to me at a certain point
was [Zhao] was the CEO of BAM
Trading, not me.” Id. Ex. A-83 at 74.
According to the auditor, BAM
Trading purportedly terminated the
WCA on December 1, 2022. Ex. A7484, at BTS0083381017.
The Company is dependent on the
[Binance].com custodian to tell them
the addresses holding the assets, or
other relevant metrics . . . with
limited visibility into the process for
pulling the data.” Ex. A-89 at
Armanino-BAM-000134. Ex. A-83.
BAM Trading has three other shard
holders, but they reside in Canada,
and two of them are former Binance
employees with unknown current ties
to Zhao or Binance. Id. Binance -and not BAM Trading -- further
continues to maintain three shards in
an undisclosed location. Id. at BAMWHO-CORR-32.
Binance continues to hold two key
shards—thereby giving Binance
control without the need to involve
BAM Trading employees. Ex. A-at BAM-WHO-CORR-BAM Trading’s newly implemented
crypto asset custody and operations
policy demonstrate that Binance
Corrects an Exhibit that had
missing pages.
Corrects a misplaced citation.
Corrects a misplaced citation.
Corrects a misplaced citation.
Corrects a typographical error.
Corrects a pin citation.
Corrects a pin citation.Page 6 employees still manage requests from
BAM Trading employees in
numerous circumstances. Id. at
BTS00833844.1.
38/I
42/II.
43/II.
44/II.
46/II.
“[T]he standards of public interest,
Corrects citation.
not the requirements of private
litigation, measure the propriety and
need for injunctive relief.” SEC v.
Stratton Oakmont, Inc., 878 F. Supp.
250, 255 (D.D.C. 1995) (quoting
Hecht Co. v. Bowles, 321 U.S. 321,
331 (1944)).
“This is not a scenario where the
Corrects citation.
funds of each investor were
segregated and separately managed,
allowing for profits to remain
segregated.” Id.; see also Revak, F.3d at 87 (horizontal commonality
exists where the fortunes of the
investors are tied “to the success of
the overall venture”) (quoting Hart v.
Pulte Homes of Michigan Corp., F.2d 1001, 1004 (6th Cir.1984)).
Binance has publicly committed to
Corrects citation.
burning BNB on a quarterly basis
based on the amount of Binance’s
revenues, which is intended to
support the price of BNB. Id. See
Telegram, 448 F. Supp. 3d.2d. at (“An investor possesses an
expectation of profit when their
motivation to partake in the relevant
‘contract, transaction or scheme’ was
‘the prospects of a return on their
investment.’”).
LBRY, 2022 WL 16744741, at *6.
Corrects typographical error.
“Thise structure, which any
reasonable purchaser would
understand, would lead purchasers
of” BNB “to expect that they too
would profit from their holdings of”
BNB “as a result of” Binance’s
“assiduous efforts.” Id.
“[If] it did not, then a party would
Corrects typographical error.
itself be able to elude SEC
jurisdiction by making simple
changes to its corporate structure, an
obviously untenable result.”
Intercontinental Exch., Inc. v. SEC,
23 F.4th 1013, 1024-25 (D.C. Cir.
2022) (explaining that “overlooking
corporate affiliation here would allow
a company that controls an exchange
to evade SEC oversight by making a
simple change to its corporate
structure”).Page 7
48/II.
15 U.S.C. § 78c(a)(23)(A).
Corrects citation.
50/II.
Corrects typographical error.
50/II.
51/II.
51/II.
The SEC has a likelihood of success
on the merits of its Exchange Act
Section 15(a) charges against
Binance and BAM Trading, and set
forth sufficient facts from which an
inference can be drawn that Binance
and BAM Trading operated as
unregistered brokers. Section
15(a)(1) of the Exchange Act makes
it “unlawful for any broker or dealer .
. . to make use of the mails or any
means or instrumentality of interstate
commerce to effect any transactions
in, or to induce or attempt to induce
the purchase or sale of, any security”
unless, in relevant part, such broker
or dealer is registered with the
Commission.
See SEC v. Interlink Data Network of
L.A., Inc., Civ. A. No. 93-3073R,
1993 WL 603274, at *10 (C.D. Cal.
Nov. 15, 1993). “The broker-dealer
registration requirement is ‘of the
utmost importance in effecting the
purposes of the [Exchange] Act,’” as
it enables the SEC to “‘exercise
discipline over those who may
engage in the securities business,’”
and “‘establishes necessary standards
with respect to training, experience,
and records.’” SEC v. River N.
Equity LLC, 415 F. Supp. 3d 853,
858 (N.D. Ill. 2019) (quoting SEC v.
Benger, 697 F. Supp. 2d 932, (N.D. Ill. 2010)).
The Exchange Act defines “broker”
as “any person engaged in the
business of effecting transactions in
securities for the account of others.”
15 U.S.C. § 78c(a)(4)(A).
These factors are not exclusive, and
not all, nor any particular number of
them, must be satisfied to qualify as a
broker. See SEC v. Benger, 697 F.
Supp. 2d at 932, 945 (N.D. Ill 2010).
52/II.
Binance and BAM Trading were
therefore each required to register
with the SEC as a broker or operate
pursuant to an exemption from
registration, but did not do so. SOF
Sections III.A-D, E; V.C.-D.
Corrects citation.
Corrects citation.
Corrects citation.
Corrects citation.Page 8
53/II.
54/II.
56/II.
58/II.
58/II.
60/III
Scienter is not needed to prove a
violation of Section 17(a)(2) or
(a)(3); a showing of negligence is
sufficient. See Aaron v. SEC, U.S. 680, 697, 701-02 (1980); Weiss
v. SEC, 468 F.3d 849, 855 (D.C. Cir.
2006); see also Beck v. Dobrowski,
559 F.3d 680, 682 (7th Cir. 2009)
(negligence “is a failure, whether
conscious or even unavoidable (by
the particular defendant, who may be
below average in his ability to
exercise due care), to come up to the
specified standard of care”).
Harman, 791 F.3d at 111-12; but see
In re Fed. Nat’l Mort. Ass’n Sec.,
Derivative, & Erisa Litig., 503 F.
Supp. 2d 25, 44 (D.D.C. 2007) (to
state a Section 20(a) claim, plaintiffs
must adequately plead defendants’
“culpable participation”).
Binance and BAM Management’s
contacts are also imputed to Zhao.
SEC v. Terraform Labs Pte Ltd., No.
22-368, 2022 WL 2066414, at *3 n.2.
Defendants regularly solicited U.S.
investors via their social media and
other internet postings to trade on
both of the Binance Platforms. SOF
Sections III3.A., V5.A.
By then, Binance estimated that it
had over 1.47 million U.S.-based
investors on the Binance.com
Platform, and it continued to
maintain a substantial U.S. customer
base for several years thereafter.
SOF Section III3.A Ex. A-22, at
BHL-SEC-BUSD-0215008.
Zhao and Binance established the
company as a “Tai Chi” entity
designed protect Binance from U.S.
regulatory scrutiny, and substantially
controlled BAM Trading’s
operations, including its bank
accounts and custody and control of
U.S. investor crypto assets. Id.
Corrects citation.
Corrects citation.
Corrects a pin citation.
Corrects citation.
Corrects citation.
Corrects citation.
PDF Page 1
PlainSite Cover Page
PDF Page 2
Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 1 of 8
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
Civil Action No. 1:23-01599
ERRATA SHEET
MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF
U.S. SECURITIES AND EXCHANGE COMMISSION’S
EMERGENCY MOTION FOR A TEMPORARY RESTRAINING ORDER
FREEZING ASSETS AND GRANTING OTHER RELIEF AND ORDER
TO SHOW CAUSE WHY RELIEF SHOULD NOT CONTINUE
The following changes have been made to the Memorandum (Dkt. No, 26). Changes
below are shown in underline/strikeout format to indicate added and removed language,
respectively.
Errata
No.
1
Page/ Section
Revision
The Binance.com Platform markets Corrects a citation error.
itself as offering over 350 crypto
assets for trading that is available to
customers in more than 100
countries, among other crypto assetrelated services.1 Ex. 3-A
4/ I
1
2
5/ I
Basis for Revision
www.binance.com
He further explained that crypto
asset exchanges are “a way to
bypass the tightening regulation.”
Id.3
3Eva
Xioa, Three months after launch,
this unbanked crypto exchange made
$7.5m in profit, Tech In Asia
(December 1, 2017),
https://www.techinasia.com/cryptocurre
ncy-exchange-binance available at
https://archive.is/ayWPC.
Corrects citation error.
PDF Page 3
Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 2 of 8
Errata
No.
Page/ Section
3
6/II
4
8/II
5
11/III. A.
6
12/III. B.
7
8
9
12/III. B.
12/III. B.
13/III. E.
Revision
Basis for Revision
Binance’s BNB ICO was marketed
and sold to investors globally, and
Binance imposed no restrictions on
U.S. investments in BNB or on the Corrects citation error.
ability of BNB investors to
immediately resell BNB to U.S.
investors. Steele Dec. ¶¶ 99-100.
Ex. A-83 at 48-50
(This discount was 50 percent in the
first year after the BNB ICO). Id. at Adds a pin citation.
11.
“Trade. Anywhere.” Ex. A-2320. Corrects a typographic error.
(i.e., price, quantity, and time
historical data for such trades). Ex.
A-24. Id.
Binance OTC (short for “over the
counter”) allows customers to
transact directly with Binance,
where Binance is the counterparty
trading in its own account. Ex. A23, at 5551.
Replaces a citation with Id.
Corrects a pin citation.
Since the launch of the
Binance.com Platform, Merit Peak
Limited (“Merit Peak”)—a Zhaoowned entity—provided OTC
Corrects a typographical error.
trading services on the Binance.com
Platform while it also provided
market making services on the
Binance.US Platform. Ex. A-5726.
For spot trading, Binance typically
charges between 0.015 percent and
0.2 percent of the nominal value of
transactions, depending on various
Corrects a typographical error.
parameters. Binance also charges
fees for withdrawals and for trading
on margin.8 Ex. Ahttps://www.binance.com/en/fee/trading
10
14/IV.
Among other things, Zhao and
Binance were aware that they were
subject to SEC regulatory actions
due to their “[i]ssuance of BNB to
Corrects a typographical error.
US Persons,” and “for [operating an]
unregistered securities brokerage.”
Ex. A-34, at BHL-SEC-BUSD02355367-53-8.7.
PDF Page 4
Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 3 of 8
11
14/IV.
As Zhao admitted in June 2019, their
“goal” was “to reduce the losses to
ourselves, and at the same time to
Corrects a quotation translation.
make prevent the U.S. regulatory
authorities entities not troublinge us.”
Ex. A-38.
Today, the Binance.US Platform is
available in 46 U.S. states and 8 U.S.
territories, including in this District.9
12
13
16/V.
18/V. B.
14
18/V. B.
15
18/V. B.
16
18/V. B.
17
19/V. B.
9. Ex. A-5; Binance.US Raises
$200M+ in Seed Round at a
Corrects a misplaced citation.
$4.5B Valuation,
https://blog.binance.us/binanceus-raises-200m-in-seed-round-ata-4-5b-valuation/(last accessed on
June 6, 2023).
https://support.binance.us/hc/en/us
/articles/360046786914 List of
Unsupported States
At the time of Binance.US Platform’s
launch, Binance personnel were
Corrects a typographical error.
primarily responsible for managing
trading. Ex. A-4657.
As reflected in the Master Services
Agreement, Binance is responsible
for maintaining, supporting,
developing, and implementing
Replaces citation with Id.
additional features and upgrades to
the Binance.US Platform, including
the platform’s crypto asset trading
services and features. Id. Ex. A-46.
Over time, Binance has transitioned
certain of its responsibilities and
functions to BAM Trading personnel
(sometimes by converting Binance
employees into BAM Trading
Duplicative citation.
employees), but nonetheless BAM
Trading and Binance personnel have
increasingly worked together to
provide and maintain the Binance.US
Platform’s exchange functions. Exs.
A-83 at 49-50; A-86 at 126-127, 136137, 150.
Customers can enter different order
types on the Binance.US Platform.
Corrects a typographical error.
Ex. A-2343.
The Binance.US Platform’s website,
API, and mobile apps allow
customers to enter orders, view
Corrects a typographical error.
account information, and otherwise
access the platform’s trading services
and other functions. Id. Ex. A-23
PDF Page 5
Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 4 of 8
Sigma Chain AG (“Sigma Chain”), a
Swiss entity wholly owned and
controlled by Zhao and operated by
Corrects pin citation.
Binance employees, has been the sole
counterparty for the OCBS and
Convert services since they were first
offered in early 2020 and April 2021,
respectively. Id. at BTS00037799.4.
18
19/V. B.
19
19/V. B.
Customers can enter different
order types on the Binance.US
Platform. Ex. A-234.
20
19/V.B.
21
19/V. C.
The OCBS service permits customers Corrects a typographical error.
to exchange U.S. Dollars for crypto
assets, and the Convert service
permits the exchange of one crypto
asset for another of over 130 crypto
assets. Id. at BTS00037799. Sigma
Chain AG (“Sigma Chain”), a Swiss
entity wholly owned and controlled
by Zhao and operated by Binance
employees, has been the sole
counterparty for the OCBS and
Convert services since they were first
offered in early 2020 and April 2021,
respectively. Id. at BTS000377994.
To trade on the Binance.US Platform,
a user must create a Binance.US
account. Customers must deposit and Corrects pin citation.
maintain sufficient crypto assets or
U.S. Dollars to cover their orders
when placed. Id. at BTS000377983.
22
20 V. C./
23
25/VII.
24
26/VII.
25
26/VII.
26
26/VII.
The crypto assets are then held in
omnibus wallets. Ex. A-51 at
BTS00058742.
From On January 1, 2023 to March
31, 2023, $840 million was deposited
into eight Binance/Zhao-owned
companies, and $899 million was
withdrawn, from those accounts. Id.
Further, two foreign-domiciled Zhaoowned entities, Merit Peak and
Sigma Chain, commingled funds
from both Binance Platforms into
their U.S. bank accounts, along with
other funds. Verma Dec. ¶¶ 8(d)-(f),
12, & Attachment 2.
It served as an “over-the-counter,” or
“OTC,” trading firm on the
Binance.com Platform, Ex. A-51 at
BTS00058739. Ex. A-26,
It was also a “market maker” for
trading on the Binance.US Platform,
providing liquidity for crypto asset
trading on the platform. Id. at
Corrects a typographical error.
Adds a pin citation.
Clarifies a date.
Adds a pin citation.
Corrects a citation error.
Corrects a citation error.
PDF Page 6
Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 5 of 8
BTS00058739. Ex. A-56.
27
26/VII.
Between 2019 and 2021, Merit
Peak’s account received over $22
billion. Verma Dec. ¶86(d).
Corrects a typographical error.
28
26/VII.
Further, Merit Peak received
approximately $6.3 billion in funds
from Binanced. Verma Dec. ¶12.
Corrects a typographical error.
29
29/VIII.B
30
30/VIII. B.
31
30/VIII. B.
32
30/VIII. B.
33
31/ VIII. B.
34
31/ VIII.B.2
35
31/VIII. B. 5
36
31/VIII. B. 8
Duplicative of citation in fn.
But as of at least the end of May
2023, Zhao remained a signatory
on BAM Trading’s Prime Trust
accounts, which held Binance.US
Platform customer funds. Exs. A67; A-68 at BAM-WH-CORR034.
He concluded, the “biggest risk in
this company is we are highly
dependent on a bunch of technology
that sits in Asia.” Ex. A-83 at 74-74,
114. Ex. A-83A at 68, 114 and 120.
Zhao, however, refused BAM CEO
B’s attempts to migrate this
technology, leading BAM CEO B to
quit because, as he testified, “what
became clear to me at a certain point
was [Zhao] was the CEO of BAM
Trading, not me.” Id. Ex. A-83 at 74.
According to the auditor, BAM
Trading purportedly terminated the
WCA on December 1, 2022. Ex. A7484, at BTS0083381017.
The Company is dependent on the
[Binance].com custodian to tell them
the addresses holding the assets, or
other relevant metrics . . . with
limited visibility into the process for
pulling the data.” Ex. A-89 at
Armanino-BAM-000134. Ex. A-83.
BAM Trading has three other shard
holders, but they reside in Canada,
and two of them are former Binance
employees with unknown current ties
to Zhao or Binance. Id. Binance -and not BAM Trading -- further
continues to maintain three shards in
an undisclosed location. Id. at BAMWHO-CORR-32.
Binance continues to hold two key
shards—thereby giving Binance
control without the need to involve
BAM Trading employees. Ex. A-68
at BAM-WHO-CORR-033
BAM Trading’s newly implemented
crypto asset custody and operations
policy demonstrate that Binance
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Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 6 of 8
employees still manage requests from
BAM Trading employees in
numerous circumstances. Id. at
BTS00833844.1.
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39
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40
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“[T]he standards of public interest,
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not the requirements of private
litigation, measure the propriety and
need for injunctive relief.” SEC v.
Stratton Oakmont, Inc., 878 F. Supp.
250, 255 (D.D.C. 1995) (quoting
Hecht Co. v. Bowles, 321 U.S. 321,
331 (1944)).
“This is not a scenario where the
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funds of each investor were
segregated and separately managed,
allowing for profits to remain
segregated.” Id.; see also Revak, 18
F.3d at 87 (horizontal commonality
exists where the fortunes of the
investors are tied “to the success of
the overall venture”) (quoting Hart v.
Pulte Homes of Michigan Corp., 735
F.2d 1001, 1004 (6th Cir.1984)).
Binance has publicly committed to
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burning BNB on a quarterly basis
based on the amount of Binance’s
revenues, which is intended to
support the price of BNB. Id. See
Telegram, 448 F. Supp. 3d.2d. at 371
(“An investor possesses an
expectation of profit when their
motivation to partake in the relevant
‘contract, transaction or scheme’ was
‘the prospects of a return on their
investment.’”).
LBRY, 2022 WL 16744741, at *6.
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“Thise structure, which any
reasonable purchaser would
understand, would lead purchasers
of” BNB “to expect that they too
would profit from their holdings of”
BNB “as a result of” Binance’s
“assiduous efforts.” Id.
“[If] it did not, then a party would
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itself be able to elude SEC
jurisdiction by making simple
changes to its corporate structure, an
obviously untenable result.”
Intercontinental Exch., Inc. v. SEC,
23 F.4th 1013, 1024-25 (D.C. Cir.
2022) (explaining that “overlooking
corporate affiliation here would allow
a company that controls an exchange
to evade SEC oversight by making a
simple change to its corporate
structure”).
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Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 7 of 8
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15 U.S.C. § 78c(a)(23)(A).
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44
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46
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The SEC has a likelihood of success
on the merits of its Exchange Act
Section 15(a) charges against
Binance and BAM Trading, and set
forth sufficient facts from which an
inference can be drawn that Binance
and BAM Trading operated as
unregistered brokers. Section
15(a)(1) of the Exchange Act makes
it “unlawful for any broker or dealer .
. . to make use of the mails or any
means or instrumentality of interstate
commerce to effect any transactions
in, or to induce or attempt to induce
the purchase or sale of, any security”
unless, in relevant part, such broker
or dealer is registered with the
Commission.
See SEC v. Interlink Data Network of
L.A., Inc., Civ. A. No. 93-3073R,
1993 WL 603274, at *10 (C.D. Cal.
Nov. 15, 1993). “The broker-dealer
registration requirement is ‘of the
utmost importance in effecting the
purposes of the [Exchange] Act,’” as
it enables the SEC to “‘exercise
discipline over those who may
engage in the securities business,’”
and “‘establishes necessary standards
with respect to training, experience,
and records.’” SEC v. River N.
Equity LLC, 415 F. Supp. 3d 853,
858 (N.D. Ill. 2019) (quoting SEC v.
Benger, 697 F. Supp. 2d 932, 944
(N.D. Ill. 2010)).
The Exchange Act defines “broker”
as “any person engaged in the
business of effecting transactions in
securities for the account of others.”
15 U.S.C. § 78c(a)(4)(A).
These factors are not exclusive, and
not all, nor any particular number of
them, must be satisfied to qualify as a
broker. See SEC v. Benger, 697 F.
Supp. 2d at 932, 945 (N.D. Ill 2010).
47
52/II.8
Binance and BAM Trading were
therefore each required to register
with the SEC as a broker or operate
pursuant to an exemption from
registration, but did not do so. SOF
Sections III.A-D, E; V.C.-D.
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Case 1:23-cv-01599-ABJ Document 29-1 Filed 06/08/23 Page 8 of 8
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51
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52
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53
60/III
Scienter is not needed to prove a
violation of Section 17(a)(2) or
(a)(3); a showing of negligence is
sufficient. See Aaron v. SEC, 446
U.S. 680, 697, 701-02 (1980); Weiss
v. SEC, 468 F.3d 849, 855 (D.C. Cir.
2006); see also Beck v. Dobrowski,
559 F.3d 680, 682 (7th Cir. 2009)
(negligence “is a failure, whether
conscious or even unavoidable (by
the particular defendant, who may be
below average in his ability to
exercise due care), to come up to the
specified standard of care”).
Harman, 791 F.3d at 111-12; but see
In re Fed. Nat’l Mort. Ass’n Sec.,
Derivative, & Erisa Litig., 503 F.
Supp. 2d 25, 44 (D.D.C. 2007) (to
state a Section 20(a) claim, plaintiffs
must adequately plead defendants’
“culpable participation”).
Binance and BAM Management’s
contacts are also imputed to Zhao.
SEC v. Terraform Labs Pte Ltd., No.
22-368, 2022 WL 2066414, at *3 n.2.
Defendants regularly solicited U.S.
investors via their social media and
other internet postings to trade on
both of the Binance Platforms. SOF
Sections III3.A., V5.A.
By then, Binance estimated that it
had over 1.47 million U.S.-based
investors on the Binance.com
Platform, and it continued to
maintain a substantial U.S. customer
base for several years thereafter.
SOF Section III3.A Ex. A-22, at
BHL-SEC-BUSD-0215008.
Zhao and Binance established the
company as a “Tai Chi” entity
designed protect Binance from U.S.
regulatory scrutiny, and substantially
controlled BAM Trading’s
operations, including its bank
accounts and custody and control of
U.S. investor crypto assets. Id.
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