New York and Federal finance regulators have blocked a $1.02 billion transaction to Voyager by Binance.US in order to buy the assets of the bankrupt cryptocurrency lender, claiming in documents on February 22 that it may be discriminatory and illegal.
The action comes in response to the Securities and Exchange Commission’s (SEC) growing involvement in the cryptocurrency space. SEC investigations into possible unregistered security sales recently led Kraken, a cryptocurrency exchange, to halt its staking activities.
Given how the company envisions paying back Voyager’s former clients, the SEC warned that certain aspects of the proposed Binance.US-Voyager merger may also violate the law.
Citing, in particular, the VGX token issued by Voyager, SEC said,
“The transactions in crypto assets necessary to effectuate the rebalancing, the redistribution of such assets to Account Holders, may violate the prohibition in Section 5 of the Securities Act of 1933 against the unregistered offer, sale, or delivery after sale of securities.”
The SEC further stated that it is the Debtors’ responsibility to demonstrate that the Plan’s contents are realistic and do not conflict with any applicable laws. As further evidence that the purchase would become “unfeasible” and “difficult to conclude,” the regulator noted media reports that Binance is preparing to pay fines for prior violations of money laundering and corruption laws.
The New York State Department of Financial Services (NYDFS) and Attorney General Letitia James both opposed the purchase in two documents filed on February 22. The documents included claims that Voyager was unlawfully serving consumers in the state.
Did Voyager Operate Illegally?
According to the petition, even though none of the debtors hold a licence in New York, the Department is aware of claims and other details suggesting that one or more of the debtors may have operated in New York against the law and may still be doing so.
According to the lawsuit, Voyager onboarded New York consumers and operated a virtual currency business within the state illegally without a license, in violation of New York laws and regulations, denying its customers of protection. The scheme also unfairly targets New Yorkers, who will have to wait six months to get their cryptocurrency back from Binance.US increases support in the state, according to NYDFS.
However, Voyager has already maintained that the Binance.US deal provides the best result for creditors and that NYDFS complaints are “hypocritical” because the authorities themselves are restricting the availability of cryptocurrencies.