Yesterday, John Reed Stark, a former Chief of the SEC\u2019s Office of Internet Enforcement and currently the president of Stark Consulting, shared his thoughts on the significant legal challenges facing Binance. Stark\u2019s 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).<\/p>\n
DOJ Filings Against Binance: A Detailed Look<\/strong><\/p>\n Stark highlights the release of several DOJ filings related to Binance, which he believes cast a bright light on the DOJ\u2019s rigorous oversight of the company. These filings include a \u201cStatement of Facts\u201d admitted by Binance, \u201cCompliance Commitments,\u201d and a description of the DOJ \u201cCompliance Monitorship.\u201d Stark emphasizes the unprecedented nature of this level of DOJ and U.S. Financial Crimes Enforcement Network (FinCEN) supervision over a global financial firm.<\/p>\n 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.<\/p>\n The DOJ Compliance Monitor\u2019s mandate is extensive, covering a wide range of Binance\u2019s obligations. Stark points out that the DOJ\u2019s Criminal Division, including the Money Laundering and Asset Recovery Sections, the National Security Division, and others, will oversee these duties and authorities.<\/p>\n FinCEN Consent Decree: Additional Layers of Oversight<\/strong><\/p>\n 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 \u201cextraordinary and unique\u201d opportunity for law enforcement and regulatory teams to access a continuous stream of inculpatory evidence.<\/p>\n SEC\u2019s Supplemental Pleading Against Binance<\/strong><\/p>\n Turning to the SEC\u2019s 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 \u201cNotice of Supplemental Authority\u201d 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).<\/p>\n Stark outlines how these admissions strengthen the SEC\u2019s case against Binance and CZ. He points out that Binance\u2019s 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\u2019s claims of lacking \u201cfair notice\u201d of legal violations and engaging in non-actionable extraterritorial conduct.<\/p>\n