Yesterday, John Reed Stark, a former Chief of the SEC’s Office of Internet Enforcement and currently the president of Stark Consulting, shared his thoughts on the significant legal challenges facing Binance. Stark’s analysis, posted on social media platform X on 9 December 2023, dives into the implications of recent U.S. Department of Justice (DOJ) filings and actions by the U.S. Securities and Exchange Commission (SEC) against Binance and its former CEO, Changpeng Zhao (CZ).
DOJ Filings Against Binance: A Detailed Look
Stark highlights the release of several DOJ filings related to Binance, which he believes cast a bright light on the DOJ’s rigorous oversight of the company. These filings include a “Statement of Facts” admitted by Binance, “Compliance Commitments,” and a description of the DOJ “Compliance Monitorship.” Stark emphasizes the unprecedented nature of this level of DOJ and U.S. Financial Crimes Enforcement Network (FinCEN) supervision over a global financial firm.
The DOJ Compliance Commitments, as Stark notes, mandate a high level of compliance across various areas, including policies, internal controls, anti-circumvention controls, and more. The exhaustive list of commitments, according to Stark, could cost Binance a substantial amount to implement and execute.
The DOJ Compliance Monitor’s mandate is extensive, covering a wide range of Binance’s obligations. Stark points out that the DOJ’s Criminal Division, including the Money Laundering and Asset Recovery Sections, the National Security Division, and others, will oversee these duties and authorities.
FinCEN Consent Decree: Additional Layers of Oversight
Stark also discusses the FinCEN Consent Decree, which imposes additional monitorships on Binance. This decree requires Binance to retain a Monitor for five years to assess and monitor its compliance with various legal and regulatory requirements. Stark describes this as an “extraordinary and unique” opportunity for law enforcement and regulatory teams to access a continuous stream of inculpatory evidence.
SEC’s Supplemental Pleading Against Binance
Turning to the SEC’s actions, Stark notes that the SEC has begun incorporating facts from the DOJ plea agreement into its enforcement action against Binance and CZ. This includes a “Notice of Supplemental Authority” filed by the SEC, which asks the court to consider admissions made by Binance in its settlement with the DOJ, FinCEN, and the Commodity Futures Exchange Commission (CFTC).
Stark outlines how these admissions strengthen the SEC’s case against Binance and CZ. He points out that Binance’s plea agreements admit to deliberately subverting U.S. law and maintaining substantial connections to the United States. The SEC argues that these actions contradict Binance and CZ’s claims of lacking “fair notice” of legal violations and engaging in non-actionable extraterritorial conduct.
Looking Ahead: Stark’s Perspective on Binance’s Future
Stark concludes with a stark assessment of Binance’s future. He argues that the level of governmental oversight agreed to by Binance is unprecedented and likens it to a “financial colonoscopy.” He suggests that Binance’s transformation into a law-abiding, transparent, and government-friendly financial firm seems nearly impossible under such intense scrutiny. Stark predicts that it’s only a matter of time before the Binance plea deal collapses, potentially leading to additional charges against Binance, CZ, and others associated with the company.
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