Through thirteen charges on 136 pages, SEC alleges that Binance and its CEO Changpeng Zhao “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law”
The US Securities and Exchange Commission (SEC) has filed a civil action against the major crypto exchange Binance and its CEO Changpeng Zhao (CZ), alleging that the entity intentionally and blatantly violated a range of securities laws, earning billions of dollars while “placing investors’ assets at significant risk”.
Among other things, SEC claims that although Binance publicly affirmed US customers were restricted from transacting on the firm’s international exchange, the firm and its CEO “subverted their own controls” to violate this rule.
The regulator also alleges that the crypto exchange has been misleading investors about the actual ownership of the Binance.US trading platform. According to SEC, Zhao and Binance secretly controlled Binance.US operations, being able to blend or divert customer assets, including to a CZ-owned and controlled entity called Sigma Chain.
These “manipulative trading” practices allegedly prevented customers from realizing the trading risks. Moreover, SEC claims that Binance intentionally failed to achieve proper registration for its activities so that it could “evade the critical regulatory oversight designed to protect investors and markets.”
In addition, the defendants “have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes,” says the plaintiff agency. For instance, the firm “unlawfully offered three essential securities market functions — exchange, broker-dealer, and clearing agency — on the Binance Platforms without registering with the SEC.”
The regulator separately addresses Binance’s proprietary crypto assets BNB and BUSD, as well as its profit-generating lending and staking programs e.g. “BNB Vault” and “Simple Earn,” available on the Binance.US Platform.
What does the defendant have to say?
Responding to accusations, Binance said it was “disappointed” with the SEC complaint and its efforts to “unilaterally define crypto market structure.” CZ and Binance lawyers intend to defend the platform “vigorously”, reassuring that “All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure.”
The firm also expressed its disappointment as the SEC’s unwillingness to cooperate in investigation, insisting on “regulation by enforcement” rather than engaging in collaborative, transparent, and thoughtful policy development crucial to “provide much-needed clarity and guidance to the digital asset industry”.
Binance believes the SEC is not eager to adopt “thoughtful, nuanced approach” to the dynamic and complex blockchain and crypto technology. Instead, “The SEC’s real intent … appears to be to make headlines,” alleges the crypto exchange.
Binance is not the only global crypto service provider to face SEC scrutiny and legal complaints. Its main rival, Coinbase, has also recently launched an offshore exchange, while preparing for years-long court battle with SEC.
Some smaller industry players were previously forced to pay fines or give up parts of their business on SEC’s demand. Thus, this February, Kraken agreed to shut crypto-staking to settle SEC charges while Nexe crypto asset platform was fined by SEC for $45 million.
While crypto regulation in the US is the hot discussion topic and a matter of many bills under consideration, one recent legislative proposal specifically targets the role of SEC in the crypto industry, suggesting to transfer spot market authority over crypto commodities to Commodity Futures Trading Commission (CFTC).