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Posted March 18, 2024 at 12:20 pm EST.

The Securities and Exchange Commissions landmark case against Binance is homing in on a key question: Who has the keys to Binance.USs assets?

Binance remains by far the largest crypto exchange in the world, despite the SECs case, as well as criminal charges from the Justice Department in November against Binance and Changpeng Zhao, the founder, CEO and longtime public face of the exchange.

The two cases have revealed an extensive schema of previously unknown companies and entities affiliated with Zhao in no small part thanks to information revealed as cryptos favorite banks were collapsing like dominoes a year ago.

The court in the Justice Departments case last week told Zhao to surrender his passport, a safeguard to keep him from leaving the U.S. between now and his sentencing.

Read more: Binance Founder CZs Criminal Sentencing Date Postponed to April: Report

New filings show the SEC equally worried about keeping Binance.USs assets from being whisked abroad, one of its initial concerns in the case and one it says Binance still has not adequately addressed.

The SEC recently introduced a flurry of new evidence in its case, including bank records and excerpts from previously sealed depositions. It is part of a dispute over the discovery process Binance wants it over, while the SEC wants to keep it going.

The agency is arguing to the court that Binance.US, also known as BAM, has not fully kept its assets separate from those of Binance Holdings Limited, the global entity. Expedited discovery has cast doubt upon BAMs claims that it exclusively controls the private keys, the SEC says.

The SEC presents its fear that Binance is going to pull assets out of its American branch, Binance.US and out into the wider world, where the Wall Street beat cop struggles to reach.

In the words of the SEC, the question is whether Binance Holdings Limited (BHL), Zhao, or any of their affiliated entities have any custody, control, or the ability to transfer BAMs Customer Assets.

Amid this dispute, a mysterious individual long at the center of conspiratorial hubbub about who controls what at Binance has come to the forefront: Guangying Heina Chen.

Chen has no official title within Binance, which has led to her becoming the subject of much speculation among the public. Her role is one that the global exchange has gone to great lengths to downplay, generally referring to her as something along the lines of back office manager for Binance Global.

One new exhibit intended to contradict that title is just a screenshot of a text from one executive to Binance.USs new Chief Information Security Officer, introducing Chen as Binances CFO. And regardless of title, Chen is supposed to work for Binance Global, outside of a silo around Binance.US. Throughout the recent documents, the SEC establishes Chen as the person they fear has access to Binance.USs customer assets.

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Chen (who is identified as the Back Office Manager in the Complaint) controlled BAMs bank accounts and clearing operations, the SEC writes.

The evidence demonstrates that, as of June 2023, a senior BHL employee, Guangying Heina Chen, set up at least three electronic devices that maintained BAMs key shards, and maintained a hardware wallet on which BAM customer and company assets were staked, the SECs counsel writes.

One of the new pieces of evidence is a request from Silvergate Bank, which maintained accounts for several Binance entities, for information on transactions between Binance Switzerland and BPlay, an opaquely Binance-affiliated gambling site. Chen Guangying is listed as the sole signatory for BPlay.

Neither Chen nor Binance responded to requests for comment for this story.

A focal point of the SECs argument is concern that Binance.USs chief information security officer, Erik Kellogg, had to physically retrieve a shard of a private key from Chen when he started his position, a process he delayed until shortly after the SEC filed suit against the exchange last June. In essence, the SEC suspects that Chen still has or could make keys to Binance.USs customer assets.

Sharding of private keys is risky. The shards of a private key cannot just be transferred or reset individually. Shards of private keys, when compromised, often require the creation of a whole new original private key.

Shards can be held in multiple hands, like two people can hold the same private key, Lukas Schor, a co-founder of custody Safe, told Unchained. Its just a secret that ideally is not shared.

As the Wealth Security Protocol, makers of a self-custody wallet, wrote, If the key is compromised either at creation or during reconstruction, a users funds can be stolen.

Can she [Chen] create a new shard? the SEC asked Tao Zhang, who runs Binance.USs clearing team, in an unsealed section of his deposition. I dont know, was Zhangs answer, over an objection from Binance.US attorney Matthew Laroche.

Does she [Chen] know who all the shardholders are? the SECs attorneys asked. The answer was another objection from Laroche and another I dont know from Zhang.

Responding to the SEC in the cases status report, Binances legal team wrote that the SEC has not pointed to any evidence that BAMs customer assets are not secure or have been misused or dissipated in any way.

Read more here:

SEC Is Still Worried About the Security of Binance.US's Assets, Filings Show - Unchained - Unchained