Page 1 Declaration of Matthew Beville
Ex. 8Page 2 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
UNDER SEAL
Plaintiff,
)
)
v.
)
No. 1:23-cv-01599-ABJ-ZMF
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
PLAINTIFF’S REPLY IN SUPPORT OF ITS
MOTION TO COMPEL AND FOR OTHER RELIEF
BAM’s Opposition (Dkt. No.108, “Opp.”) to the SEC’s Motion to Compel perfectly
illustrates the house of mirrors the SEC has been navigating for months. Despite agreeing to the
Consent Order’s expedited discovery provisions, BAM now attempts to relitigate their scope and
purpose. BAM insists that this Court, like the SEC, should accept packaged counsel narratives,
carefully drafted declarations, and small curated sets of documents regarding control of BAM’s
customers’ assets, and that any lingering concerns are “much ado about nothing.” Opp. 3. The
problem of course is that the Consent Order was entered precisely because these conclusory
representations, undermined by BAM’s own documents and inability to keep its story straight,
did not actually establish that BAM exercised exclusive control over its customers’ assets.
Accordingly, the Court ordered expedited discovery so that the SEC could obtain actual evidence
and not just BAM’s questionable representations concerning custody, control, and availability of
customer assets. But rather than engage in a fulsome response to the Consent Order’sPage 3 requirements, BAM has provided inconsistent representations about key facts, slow-rolled small
productions of documents and information, and stonewalled on entire categories of information
that would likely shed light on its shaky assertions concerning the custody of customer assets.
Indeed, recent depositions have revealed a plethora of responsive documents and
information, which demonstrates that BAM either failed to conduct a reasonable search or has
withheld these documents and information without proper basis. Moreover, the limited
information that BAM has produced during expedited discovery has revealed that BAM may be
violating the Consent Order, and without additional discovery, the SEC and the Court will be left
where they were when this process began—unable to ensure the safety and availability of
BAM’s customers’ assets during the pendency of this litigation. The accelerating mass exodus
of BAM employees, now including its CEO and others who may possess crucial information
regarding the custody, control, and availability of assets, further underscores the urgent need for
expedited discovery into these issues now. This Court should reject BAM’s half-hearted claims
of irrelevance, prejudice, and burden, and instead grant the Motion to Compel in its entirety.
ARGUMENT
I.
BAM Has Failed to Fulfill Its Discovery Obligations in Response to the SEC’s
Requests For Production and Interrogatories
BAM claims that it has fulfilled its discovery obligations because it has produced all
documents in its possession, custody, and control, after a reasonable search (Opp. 12), but this is
demonstrably false. Multiple witnesses have now identified sources of relevant documents
directly responsive to the SEC’s requests that would have been identified by any reasonable
search by counsel and that BAM did not produce, including categories of documents it
represented did not exist. Moreover, BAM has refused to conduct a search for communications
at all, despite the deponents’ testimony that communications about BAM’s custody of customer
2Page 4 assets exist and are easily identifiable. BAM’s objection that the SEC seeks nonexistent
documents or unreasonable certainty is a strawman that has been refuted by its own employees.
The SEC seeks information that is reasonably obtainable and that falls squarely within the scope
of the Consent Order and the Federal Rules.
a. BAM’s Evolving Explanations of Ceffu and Binance’s Role Highlight the Need
for Documents and Communications Concerning BAM’s Wallet Custody
Practices
The SEC seeks an order compelling BAM to produce documents and communications
concerning any entity providing it wallet custody software and related services. Mem. in Supp.
Of Mot. to Compel (“Mem.”), Dkt. No. 102-3. As the SEC has demonstrated, BAM has failed to
comply with the Consent Order’s expedited discovery provisions concerning wallet custody.
BAM has only provided an extremely limited amount of information, resting its refusal to do
more primarily on unsupported burden objections. Mem. at 22-27. But even this limited
discovery has revealed that BAM still cannot credibly explain its crypto asset wallet custody
arrangements. Id. at 10-13; 22-23. And BAM has continued to provide the SEC with conflicting
information concerning Defendant Binance Holdings Limited’s (“BHL” or “Binance”) role, and
that of a Binance-related entity called “Ceffu,” in the custodying of Customer Assets. Id.
BAM now asserts that its arrangements with Binance as a wallet service provider have
essentially never changed, casting Binance as a mere third-party vendor whose wallet software
services are akin to BAM’s internet service provider—such that BAM cannot be expected to be
sure how that vendor operates or handles BAM’s information. Opp. 17. Far from being a mere
innocuous service provider, however, Binance and BAM are under the common ownership of
another Defendant in this action, an individual who views himself outside the jurisdiction of any
court. Worse, as the SEC has demonstrated, Binance has a long history of controlling BAM to
serve Binance’s own unlawful purposes. See Mem. 27-28. It is precisely these circumstances
3Page 5 that led to the Consent Order in the first place. See Ex. 1 1, at 57:12-15; 79:17-21. Binance’s
control of BAM assets is not some “theoretical risk,” Opp. 17, but rather the foundation for the
current expedited discovery process—to ensure that BAM customers’ assets are safe throughout
the pendency of this litigation, including by being under the “sole” custody and control of BAM
personnel in the United States. BAM also suggests that the SEC essentially blessed sub silentio BAM’s status quo
relationship with Binance. Opp. 3. Apart from being untrue, 3 this assertion makes no sense
given the heavily negotiated Consent Order requirements, which are neither disputed nor
ambiguous. The Consent Order makes clear that BAM personnel located in the United States are
to have “sole” and “complete” possession, custody, and control of all Customer Assets, which, as
defined, includes relevant wallets, private and administrative keys, software, and AWS root
accounts, and that all transfers and withdrawals are to be “solely” under the direction and control
of BAM personnel located in the United States. (See, e.g., Dkt. No. 71 at I, II.). The Consent
Order expressly prohibits BAM from using Binance affiliates as third-party custodians (Dkt. No.
71 at II) which means, among other things, that Binance cannot have custody or control of the
private keys relating to BAM’s crypto asset wallets. The Consent Order further assumes
Binance previously had access to the private keys of BAM’s wallets and requires Binance to
“Ex.” refers to exhibits to the Declaration of Jennifer Farer that the SEC filed in support of its
Motion to Compel.
BAM’s reliance on Defendants’ written certifications, see Opp. 17, is yet another attempt to
write out the Consent Order’s expedited discovery provisions; those provisions give the SEC the
right to test Defendants’ blanket assertions.
BAM has not and cannot provide any evidence that the SEC agreed to an ongoing wallet
custody arrangement between BHL and BAM, which based on current evidence extends beyond
simply BAM’s use of BHL’s software. Indeed, the plain terms of the Consent Order, which
BAM points to as incorporating negotiations on this issue, evidence the opposite.
4Page 6 destroy any copies. Id. It further requires BAM to create new wallets as a further step to ensure
that Binance does not have access to the private keys controlling BAM’s assets. Id.
While the Consent Order does not take a position on whether BAM could continue using
Binance wallet software, BAM concedes the Consent Order provisions were designed “to ensure
that BHL did not have any unknown ability to access BAM’s customer assets.” Opp. 10. This is
why the SEC’s frustrated discovery requests seek documents and other information on whether
BAM’s arrangements with Binance (or any other wallet software provider) comply with the
Consent Order, to get to the bottom of certain fundamental questions like: How were the new
wallets created? Who controls the keys? How is BAM comfortable that Binance does not retain
control of the assets? BAM has information related to all of this, including diagrams and other
documents it provided to its auditor or were otherwise disclosed at depositions (see, e.g., Mem.
13, 16), and multiple categories of communications (discussed below), but inexplicably and
inexcusably withheld them from the SEC. This must be remedied by the relief requested in the
Proposed Order.
In the meantime, BAM’s categorical statements about its exclusive control of the wallet
keys deserve no credence, for the purposes of this Motion to Compel or otherwise. The SEC and
BAM seem to agree that the mysterious Binance-related entity “Ceffu” has caused much
confusion as to who controls BAM’s customers’ crypto assets. Opp. 13. But BAM’s attempt to
casually brush aside this critical issue as one of “an understandable misuse of a brand name” (id.)
both misstates the record and ignores BAM’s own evident and startling confusion. For example,
BAM now claims that it understood as early as June 5 that Ceffu had no role relating to BAM’s
crypto assets (the date it stated to the SEC that Ceffu-related discovery was “non-priority”) (Opp.
13, n.4). But after weeks of the SEC pressing for details on the creation of new wallets under the
5Page 7Page 8Page 9 granting that request the Court agreed it had “authorized the SEC to engage in the extensive early
discovery” pursuant to the Consent Order. (Order, Dkt. No. 88) (emphasis added).
BAM now argues that it should be relieved from further discovery obligations after
putting up three deposition witnesses and producing fewer than 250 documents, citing inapposite
authority that the “burden for the defendants to comply with expedited discovery should be ‘low,
such as responding to only one or a few discovery requests.’” Opp. 11 (citing Attkisson v.
Holder, 113 F. Supp. 3d 156, 162 (D.D.C. 2015)). 5 BAM’s burden arguments are frivolous, and
are in any event entitled to no weight given their lack of specificity or BAM’s failure to even
attempt to substantiate the burden. Tequila Centinela, S.A. de C.V. v. Bacardi & Co. Ltd., F.R.D. 1, 8 (D.D.C. 2007) (“the Court only entertains an unduly burdensome objection when the
responding party demonstrates how the document is ‘overly broad, burdensome, or oppressive,
by submitting affidavits or offering evidence which reveals the nature of the burden’”) (internal
citation and quotation marks omitted).
Nor does the fact that the SEC originally requested “[a]ll documents and
communications” excuse BAM from performing any search for relevant communications on key
topics, as BAM again argues. Opp. 14. This is particularly so given the SEC’s multiple offers
for a limited scope by date, custodian, and topic, (Mem. 23-24) efforts BAM’s opposition
disingenuously ignores.
In any event, the limited discovery to date has revealed multiple sources of
communications that are squarely relevant to the issues under the Consent Order, and that would
have been identified by the most basic diligence by counsel. These include Slack, Telegram, and
The language from Attkisson that BAM quotes refers to one prong of the test for whether to
grant expedited discovery, an issue the Court decided long ago, after which it described the
contemplated discovery as “extensive.” Order, Dkt. 88.
8Page 10 Wea channels that are dedicated to discussions about asset transfers and communications with
auditors about Binance’s role as custodian of assets. Murphy Decl. Ex. A at 78; 87-88; Ex. B at
258-59; 311-20. These facts all illustrate the need for the Court to order BAM to perform a
reasonable search for responsive communications. c. BAM Fails To Explain Why The SEC Is Not Entitled To Additional Financial
And Accounting Documents
BAM also challenges the SEC’s request for additional accounting documents and
financial information. Opp. at 15-16. It relies exclusively on the fact that it had supplemented
its prior production of bank records, but it fails to address the SEC’s arguments that such records,
such as more recent general ledgers, trial balances, and month-end statements, are necessary to
reconcile discrepancies the SEC has identified and evaluate the accounting BAM produced under
Section IV of the Consent Order. Mem. 14-15. Nor could it, as these requests are central to the
determination of whether Customer Assets remain safe and available for customer withdrawal.
Id. at 26. This Court should therefore compel their production.
d. BAM Fails To Explain Why An Inspection Is Not Warranted
The SEC has demonstrated the need for an inspection of BAM’s technological
infrastructure, and relevant systems and software, including due to BAM’s varying positions as
to the nature and extent of Binance’s involvement. BAM cannot credibly object to such critical
discovery, particularly concerning the extent to which Binance may be able to access systems
that BAM relies upon in claiming they have control of the crypto assets, and how those systems
in fact control the private keys as BAM claims. Mem. at 25. Indeed, one deponent testified
about an instance in which BAM needed Binance to facilitate a transfer of assets to the hot
As a point of comparison, BAM’s own auditor has produced over 6,526 documents and
communications concerning custody and control of assets.
9Page 11 wallets pursuant to preconfigured thresholds in the PNK system, which raises questions about
how PNK interacts with the private keys and whether BAM in fact has sole control of the private
keys for these wallets through PNK, exclusive of Binance. Murphy Ex. A 70-74; 78. BAM’s
claim in its opposition that it does not have any additional documents concerning this
infrastructure (Opp. At 16), and the CISO’s lack of knowledge about the infrastructure and
software—even about how BAM’s own systems may interact with these systems to control the
private keys—further highlights the importance of an inspection, and BAM does not argue to the
contrary.
The limited inspection the SEC has been able to conduct so far demonstrates the urgent
need for an inspection. The cursory review of the phone of one shard holder revealed previously
unknown potential connections between key Binance personnel like
and BAM’s
shard technology. Murphy Decl. ¶3(b). The Court should order the inspection the SEC seeks as
set forth in its Motion to Compel.
II.
The Court Should Order Depositions Sought by the SEC
BAM’s Opposition confirms it has no basis to block the depositions of the additional
witnesses sought by the SEC, particularly Brian Shroder (CEO) and Jasmine Lee (CFO). While
BAM argues that “the SEC has failed to show that Shroder and Lee have unique knowledge of
the relevant issues,” Opp. 19, it conspicuously does not address the specific documents the SEC
relied upon demonstrating Shroder’s and Lee’s participation in crucial communications and other
events that inform who runs BAM and who controls its assets. See Mot. 28-29. Contrary to
BAM’s assertion, discovery under the Consent Order is not limited to oversight of day-to-day
transactions, but also covers the broader question of who ultimately controls BAM and,
therefore, BAM’s customers’ assets. Apparently, that person is no longer Brian Shroder (if he
10Page 12 ever was) because the SEC was informed in recent days that he has left the company. 7 This fact
disposes of BAM’s argument that Shroder’s “apex” deposition “would be disruptive to BAM’s
business” (Motion for Protective Order, Dkt. 95 at 14). It also raises the question of whether
anyone other than Zhao and Binance has ever exercised control over BAM and its assets. See
Mot. 27-28 (noting BAM’s second CEO decided to quit when he realized Zhao “was the CEO of
BAM Trading, not me.”). BAM again fails to provide any specific basis for its objections to any
of the other individuals noticed for deposition. Like BAM’s other burden arguments, any
arguments about the burden of these additional requested depositions are meritless for the
reasons discussed above.
On September 12, 2023, counsel for BAM notified counsel for the SEC that Norman Reed had
been appointed as the new CEO of BAM Trading. On September 15, 2023, counsel for Mr.
Shroder confirmed to the counsel for the SEC that Mr. Schroder had separated from Binance.US.
The Court should also deny BAM’s request for a protective order to limit the scope of the
topics addressed during the depositions is unnecessary. The Consent Order makes clear the
scope of discovery, including as it applies to the depositions, and no further relief on this issue is
necessary.
11Page 13 CONCLUSION
For these reasons, the Court should grant the SEC’s Motion, deny the BAM Defendants’
Motion for Protective Order, and order the other relief the SEC seeks.
Dated: September 18,
Respectfully submitted,
_/s/ Jennifer L. Farer
Matthew Scarlato (D.C. Bar No. 484124)
Jennifer L. Farer (D.C. Bar No. 1013915)
J. Emmett Murphy
David A. Nasse (D.C. Bar No. 1002567)
Jorge G. Tenreiro
SECURITIES AND EXCHANGE COMMISSION
(202) 551-5072 (Farer)
farerj@sec.gov
Attorneys for Plaintiff
12
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Declaration of Matthew Beville
Ex. 8
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
UNDER SEAL
Plaintiff,
)
)
v.
)
No. 1:23-cv-01599-ABJ-ZMF
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
PLAINTIFF’S REPLY IN SUPPORT OF ITS
MOTION TO COMPEL AND FOR OTHER RELIEF
BAM’s Opposition (Dkt. No.108, “Opp.”) to the SEC’s Motion to Compel perfectly
illustrates the house of mirrors the SEC has been navigating for months. Despite agreeing to the
Consent Order’s expedited discovery provisions, BAM now attempts to relitigate their scope and
purpose. BAM insists that this Court, like the SEC, should accept packaged counsel narratives,
carefully drafted declarations, and small curated sets of documents regarding control of BAM’s
customers’ assets, and that any lingering concerns are “much ado about nothing.” Opp. 3. The
problem of course is that the Consent Order was entered precisely because these conclusory
representations, undermined by BAM’s own documents and inability to keep its story straight,
did not actually establish that BAM exercised exclusive control over its customers’ assets.
Accordingly, the Court ordered expedited discovery so that the SEC could obtain actual evidence
and not just BAM’s questionable representations concerning custody, control, and availability of
customer assets. But rather than engage in a fulsome response to the Consent Order’s
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requirements, BAM has provided inconsistent representations about key facts, slow-rolled small
productions of documents and information, and stonewalled on entire categories of information
that would likely shed light on its shaky assertions concerning the custody of customer assets.
Indeed, recent depositions have revealed a plethora of responsive documents and
information, which demonstrates that BAM either failed to conduct a reasonable search or has
withheld these documents and information without proper basis. Moreover, the limited
information that BAM has produced during expedited discovery has revealed that BAM may be
violating the Consent Order, and without additional discovery, the SEC and the Court will be left
where they were when this process began—unable to ensure the safety and availability of
BAM’s customers’ assets during the pendency of this litigation. The accelerating mass exodus
of BAM employees, now including its CEO and others who may possess crucial information
regarding the custody, control, and availability of assets, further underscores the urgent need for
expedited discovery into these issues now. This Court should reject BAM’s half-hearted claims
of irrelevance, prejudice, and burden, and instead grant the Motion to Compel in its entirety.
ARGUMENT
I.
BAM Has Failed to Fulfill Its Discovery Obligations in Response to the SEC’s
Requests For Production and Interrogatories
BAM claims that it has fulfilled its discovery obligations because it has produced all
documents in its possession, custody, and control, after a reasonable search (Opp. 12), but this is
demonstrably false. Multiple witnesses have now identified sources of relevant documents
directly responsive to the SEC’s requests that would have been identified by any reasonable
search by counsel and that BAM did not produce, including categories of documents it
represented did not exist. Moreover, BAM has refused to conduct a search for communications
at all, despite the deponents’ testimony that communications about BAM’s custody of customer
2
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assets exist and are easily identifiable. BAM’s objection that the SEC seeks nonexistent
documents or unreasonable certainty is a strawman that has been refuted by its own employees.
The SEC seeks information that is reasonably obtainable and that falls squarely within the scope
of the Consent Order and the Federal Rules.
a. BAM’s Evolving Explanations of Ceffu and Binance’s Role Highlight the Need
for Documents and Communications Concerning BAM’s Wallet Custody
Practices
The SEC seeks an order compelling BAM to produce documents and communications
concerning any entity providing it wallet custody software and related services. Mem. in Supp.
Of Mot. to Compel (“Mem.”), Dkt. No. 102-3. As the SEC has demonstrated, BAM has failed to
comply with the Consent Order’s expedited discovery provisions concerning wallet custody.
BAM has only provided an extremely limited amount of information, resting its refusal to do
more primarily on unsupported burden objections. Mem. at 22-27. But even this limited
discovery has revealed that BAM still cannot credibly explain its crypto asset wallet custody
arrangements. Id. at 10-13; 22-23. And BAM has continued to provide the SEC with conflicting
information concerning Defendant Binance Holdings Limited’s (“BHL” or “Binance”) role, and
that of a Binance-related entity called “Ceffu,” in the custodying of Customer Assets. Id.
BAM now asserts that its arrangements with Binance as a wallet service provider have
essentially never changed, casting Binance as a mere third-party vendor whose wallet software
services are akin to BAM’s internet service provider—such that BAM cannot be expected to be
sure how that vendor operates or handles BAM’s information. Opp. 17. Far from being a mere
innocuous service provider, however, Binance and BAM are under the common ownership of
another Defendant in this action, an individual who views himself outside the jurisdiction of any
court. Worse, as the SEC has demonstrated, Binance has a long history of controlling BAM to
serve Binance’s own unlawful purposes. See Mem. 27-28. It is precisely these circumstances
3
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that led to the Consent Order in the first place. See Ex. 1 1, at 57:12-15; 79:17-21. Binance’s
control of BAM assets is not some “theoretical risk,” Opp. 17, but rather the foundation for the
current expedited discovery process—to ensure that BAM customers’ assets are safe throughout
the pendency of this litigation, including by being under the “sole” custody and control of BAM
personnel in the United States. 2
BAM also suggests that the SEC essentially blessed sub silentio BAM’s status quo
relationship with Binance. Opp. 3. Apart from being untrue, 3 this assertion makes no sense
given the heavily negotiated Consent Order requirements, which are neither disputed nor
ambiguous. The Consent Order makes clear that BAM personnel located in the United States are
to have “sole” and “complete” possession, custody, and control of all Customer Assets, which, as
defined, includes relevant wallets, private and administrative keys, software, and AWS root
accounts, and that all transfers and withdrawals are to be “solely” under the direction and control
of BAM personnel located in the United States. (See, e.g., Dkt. No. 71 at I, II.). The Consent
Order expressly prohibits BAM from using Binance affiliates as third-party custodians (Dkt. No.
71 at II) which means, among other things, that Binance cannot have custody or control of the
private keys relating to BAM’s crypto asset wallets. The Consent Order further assumes
Binance previously had access to the private keys of BAM’s wallets and requires Binance to
1
“Ex.” refers to exhibits to the Declaration of Jennifer Farer that the SEC filed in support of its
Motion to Compel.
2
BAM’s reliance on Defendants’ written certifications, see Opp. 17, is yet another attempt to
write out the Consent Order’s expedited discovery provisions; those provisions give the SEC the
right to test Defendants’ blanket assertions.
3
BAM has not and cannot provide any evidence that the SEC agreed to an ongoing wallet
custody arrangement between BHL and BAM, which based on current evidence extends beyond
simply BAM’s use of BHL’s software. Indeed, the plain terms of the Consent Order, which
BAM points to as incorporating negotiations on this issue, evidence the opposite.
4
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destroy any copies. Id. It further requires BAM to create new wallets as a further step to ensure
that Binance does not have access to the private keys controlling BAM’s assets. Id.
While the Consent Order does not take a position on whether BAM could continue using
Binance wallet software, BAM concedes the Consent Order provisions were designed “to ensure
that BHL did not have any unknown ability to access BAM’s customer assets.” Opp. 10. This is
why the SEC’s frustrated discovery requests seek documents and other information on whether
BAM’s arrangements with Binance (or any other wallet software provider) comply with the
Consent Order, to get to the bottom of certain fundamental questions like: How were the new
wallets created? Who controls the keys? How is BAM comfortable that Binance does not retain
control of the assets? BAM has information related to all of this, including diagrams and other
documents it provided to its auditor or were otherwise disclosed at depositions (see, e.g., Mem.
13, 16), and multiple categories of communications (discussed below), but inexplicably and
inexcusably withheld them from the SEC. This must be remedied by the relief requested in the
Proposed Order.
In the meantime, BAM’s categorical statements about its exclusive control of the wallet
keys deserve no credence, for the purposes of this Motion to Compel or otherwise. The SEC and
BAM seem to agree that the mysterious Binance-related entity “Ceffu” has caused much
confusion as to who controls BAM’s customers’ crypto assets. Opp. 13. But BAM’s attempt to
casually brush aside this critical issue as one of “an understandable misuse of a brand name” (id.)
both misstates the record and ignores BAM’s own evident and startling confusion. For example,
BAM now claims that it understood as early as June 5 that Ceffu had no role relating to BAM’s
crypto assets (the date it stated to the SEC that Ceffu-related discovery was “non-priority”) (Opp.
13, n.4). But after weeks of the SEC pressing for details on the creation of new wallets under the
5
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granting that request the Court agreed it had “authorized the SEC to engage in the extensive early
discovery” pursuant to the Consent Order. (Order, Dkt. No. 88) (emphasis added).
BAM now argues that it should be relieved from further discovery obligations after
putting up three deposition witnesses and producing fewer than 250 documents, citing inapposite
authority that the “burden for the defendants to comply with expedited discovery should be ‘low,
such as responding to only one or a few discovery requests.’” Opp. 11 (citing Attkisson v.
Holder, 113 F. Supp. 3d 156, 162 (D.D.C. 2015)). 5 BAM’s burden arguments are frivolous, and
are in any event entitled to no weight given their lack of specificity or BAM’s failure to even
attempt to substantiate the burden. Tequila Centinela, S.A. de C.V. v. Bacardi & Co. Ltd., 242
F.R.D. 1, 8 (D.D.C. 2007) (“the Court only entertains an unduly burdensome objection when the
responding party demonstrates how the document is ‘overly broad, burdensome, or oppressive,
by submitting affidavits or offering evidence which reveals the nature of the burden’”) (internal
citation and quotation marks omitted).
Nor does the fact that the SEC originally requested “[a]ll documents and
communications” excuse BAM from performing any search for relevant communications on key
topics, as BAM again argues. Opp. 14. This is particularly so given the SEC’s multiple offers
for a limited scope by date, custodian, and topic, (Mem. 23-24) efforts BAM’s opposition
disingenuously ignores.
In any event, the limited discovery to date has revealed multiple sources of
communications that are squarely relevant to the issues under the Consent Order, and that would
have been identified by the most basic diligence by counsel. These include Slack, Telegram, and
5
The language from Attkisson that BAM quotes refers to one prong of the test for whether to
grant expedited discovery, an issue the Court decided long ago, after which it described the
contemplated discovery as “extensive.” Order, Dkt. 88.
8
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Wea channels that are dedicated to discussions about asset transfers and communications with
auditors about Binance’s role as custodian of assets. Murphy Decl. Ex. A at 78; 87-88; Ex. B at
258-59; 311-20. These facts all illustrate the need for the Court to order BAM to perform a
reasonable search for responsive communications. 6
c. BAM Fails To Explain Why The SEC Is Not Entitled To Additional Financial
And Accounting Documents
BAM also challenges the SEC’s request for additional accounting documents and
financial information. Opp. at 15-16. It relies exclusively on the fact that it had supplemented
its prior production of bank records, but it fails to address the SEC’s arguments that such records,
such as more recent general ledgers, trial balances, and month-end statements, are necessary to
reconcile discrepancies the SEC has identified and evaluate the accounting BAM produced under
Section IV of the Consent Order. Mem. 14-15. Nor could it, as these requests are central to the
determination of whether Customer Assets remain safe and available for customer withdrawal.
Id. at 26. This Court should therefore compel their production.
d. BAM Fails To Explain Why An Inspection Is Not Warranted
The SEC has demonstrated the need for an inspection of BAM’s technological
infrastructure, and relevant systems and software, including due to BAM’s varying positions as
to the nature and extent of Binance’s involvement. BAM cannot credibly object to such critical
discovery, particularly concerning the extent to which Binance may be able to access systems
that BAM relies upon in claiming they have control of the crypto assets, and how those systems
in fact control the private keys as BAM claims. Mem. at 25. Indeed, one deponent testified
about an instance in which BAM needed Binance to facilitate a transfer of assets to the hot
As a point of comparison, BAM’s own auditor has produced over 6,526 documents and
communications concerning custody and control of assets.
6
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wallets pursuant to preconfigured thresholds in the PNK system, which raises questions about
how PNK interacts with the private keys and whether BAM in fact has sole control of the private
keys for these wallets through PNK, exclusive of Binance. Murphy Ex. A 70-74; 78. BAM’s
claim in its opposition that it does not have any additional documents concerning this
infrastructure (Opp. At 16), and the CISO’s lack of knowledge about the infrastructure and
software—even about how BAM’s own systems may interact with these systems to control the
private keys—further highlights the importance of an inspection, and BAM does not argue to the
contrary.
The limited inspection the SEC has been able to conduct so far demonstrates the urgent
need for an inspection. The cursory review of the phone of one shard holder revealed previously
unknown potential connections between key Binance personnel like
and BAM’s
shard technology. Murphy Decl. ¶3(b). The Court should order the inspection the SEC seeks as
set forth in its Motion to Compel.
II.
The Court Should Order Depositions Sought by the SEC
BAM’s Opposition confirms it has no basis to block the depositions of the additional
witnesses sought by the SEC, particularly Brian Shroder (CEO) and Jasmine Lee (CFO). While
BAM argues that “the SEC has failed to show that Shroder and Lee have unique knowledge of
the relevant issues,” Opp. 19, it conspicuously does not address the specific documents the SEC
relied upon demonstrating Shroder’s and Lee’s participation in crucial communications and other
events that inform who runs BAM and who controls its assets. See Mot. 28-29. Contrary to
BAM’s assertion, discovery under the Consent Order is not limited to oversight of day-to-day
transactions, but also covers the broader question of who ultimately controls BAM and,
therefore, BAM’s customers’ assets. Apparently, that person is no longer Brian Shroder (if he
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ever was) because the SEC was informed in recent days that he has left the company. 7 This fact
disposes of BAM’s argument that Shroder’s “apex” deposition “would be disruptive to BAM’s
business” (Motion for Protective Order, Dkt. 95 at 14). It also raises the question of whether
anyone other than Zhao and Binance has ever exercised control over BAM and its assets. See
Mot. 27-28 (noting BAM’s second CEO decided to quit when he realized Zhao “was the CEO of
BAM Trading, not me.”). BAM again fails to provide any specific basis for its objections to any
of the other individuals noticed for deposition. Like BAM’s other burden arguments, any
arguments about the burden of these additional requested depositions are meritless for the
reasons discussed above. 8
7
On September 12, 2023, counsel for BAM notified counsel for the SEC that Norman Reed had
been appointed as the new CEO of BAM Trading. On September 15, 2023, counsel for Mr.
Shroder confirmed to the counsel for the SEC that Mr. Schroder had separated from Binance.US.
The Court should also deny BAM’s request for a protective order to limit the scope of the
topics addressed during the depositions is unnecessary. The Consent Order makes clear the
scope of discovery, including as it applies to the depositions, and no further relief on this issue is
necessary.
8
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CONCLUSION
For these reasons, the Court should grant the SEC’s Motion, deny the BAM Defendants’
Motion for Protective Order, and order the other relief the SEC seeks.
Dated: September 18, 2023
Respectfully submitted,
_/s/ Jennifer L. Farer
Matthew Scarlato (D.C. Bar No. 484124)
Jennifer L. Farer (D.C. Bar No. 1013915)
J. Emmett Murphy
David A. Nasse (D.C. Bar No. 1002567)
Jorge G. Tenreiro
SECURITIES AND EXCHANGE COMMISSION
(202) 551-5072 (Farer)
farerj@sec.gov
Attorneys for Plaintiff
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