The US Securities and Exchange Commission (SEC) had submitted a request to get access to the software that powers the American subsidiary of the Binance crypto exchange.
However, the request has been turned down by a judge and now the securities regulator is left licking its wounds.
The request
On Monday, the regulator made the request in a court hearing, asking a federal magistrate judge to permit the inspection of the technical infrastructure of Binance US.
It also requested that the company be forced to share other information that had been asked as part of its ongoing case against it.
However, Zia Faruqi, the federal Magistrate Judge, overseeing the matter said that he would now allow the inspection at this time.
Instead, the judge said that the SEC should speak to additional witnesses and submit more tailored requests.
This is the latest chapter in the lawsuit that was filed by the SEC against Binance in the month of June. The regulator sued Binance Holdings, Binance US, and Changpeng Zhao for operating an unlicensed exchange.
According to the SEC, the separation between Binance Holdings and Binance US is only cosmetic, and client funds leaving the US is a violation of the securities laws.
The case
A custody platform by the name of Ceffu is being given special attention after it had been rebranded from Binance Custody earlier this year.
The SEC has alleged that the custody platform has been functioning as a conduit between Binance Holdings and Binance US and it has been used for shifting funds of US customers out of the country.
The request for inspecting the software of Binance US had been made to understand the role that the custody platform was playing in ensuring the said funds transfer.
While the request has been denied by the judge for now, it is unlikely to deter the SEC.
Additional details
In Monday’s hearing, the SEC had claimed that only three witnesses had been supplied by Binance and it had shared less than 250 documents in the case so far.
The regulator also claimed that requests for deposing the top executives of Binance US have also been turned down.
The document on Monday said that the urgency for expedited discovery into the control, custody, and availability of assets is highlighted by the mass exodus of employees from Binance.
In recent weeks, there have been a number of resignations, which include the CEO of Binance US. The SEC says that these people might have crucial information about these matters.
According to lawyers of Binance US, the requests submitted by the SEC are just a ‘fishing expedition’. They further said that they have responded to every request from the regulator.
But, they also said that they would not respond to any foolish request for documents that have been submitted by the government.
At first, the American subsidiary had agreed but had backed out later and said that the demands of the regulator were unreasonable.
The SEC had accused Binance earlier this month of a lack of transparency in its investigation into the crypto exchange.