SEC Files Complaint Against Binance and CEO Changpeng Zhao for Securities Law Violations

Binance, the world’s largest cryptocurrency exchange platform, is facing a major legal challenge from the U.S. Securities and Exchange Commission (SEC). The SEC has filed a complaint against Binance, its U.S.-based affiliate BAM Trading Services Inc., and its founder Changpeng Zhao, accusing them of various securities law violations.

What are the allegations?

The SEC alleges that Binance and Zhao engaged in a “web of deception” to evade U.S. Regulatory oversight and mislead investors about their operations. Some of the allegations are:

• Binance and Zhao secretly allowed high-value U.S. customers to trade on Binance.com, which is an unregistered securities exchange, broker-dealer, and clearing agency, despite publicly claiming that U.S. Customers were restricted from the platform.
• Binance and Zhao secretly controlled Binance.US, which is a crypto asset trading platform for U.S. Investors, behind the scenes, while publicly claiming that it was a separate and independent entity.
• Binance and Zhao exercised control over the platforms’ customers’ assets, permitting them to commingle customer assets or divert customer assets as they pleased, including to an entity Zhao owned and controlled called Sigma Chain.
• BAM Trading and BAM Management US Holdings lied to investors about having trading controls over the Binance.US platform, while Sigma Chain manipulated the market to boost the platform’s trading volume artificially.
• Binance and Zhao concealed the fact that they were commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, which is also owned by Zhao.
• Binance and Zhao offered and sold unregistered securities, including Binance’s own crypto assets, such as BNB, BUSD, crypto-lending products, and a staking-as-a-service program.

What are the consequences?

The SEC is seeking injunctive relief, disgorgement of ill-gotten gains, civil penalties, and permanent bars against Binance and Zhao for violating federal securities laws. The SEC also wants to prohibit Binance and Zhao from participating in any aspect of the issuance, offer, or sale of any digital asset security.

The SEC’s case against Binance could have significant implications for the crypto industry, as Binance is one of the most influential and dominant players in the market. The case could also affect millions of investors who use Binance’s platforms or hold its crypto assets.

What are the reactions?

Zhao tweeted on June 5 that he was “surprised” by the SEC’s allegations and that he would “fight for our users.” He also said that Binance has always complied with local laws and regulations wherever it operates.

Binance.US and Binance responded to the SEC for the first time on Monday, claiming that the regulator’s request for a temporary restraining order would stop them from paying their employees, vendors, or anyone else. The filings also gave a glimpse of their defense against the SEC’s allegations.

The US financial regulator wants to block Binance US funds, while the exchange says that the SEC’s move will effectively shut down BAM Trading Services’ operations. Binance asked the court to reject the SEC’s motion to freeze the exchange’s funds. The SEC also sued Coinbase for trading unlicensed securities. As per Industry experts, the SEC has been more aggressive toward the crypto Industry.

The judge asked the two parties to reach an agreement on either a temporary freeze that has been negotiated or an expedited discovery plan (a plan for how the two parties will gather information about the case) that would allow the cryptocurrency exchange to continue operating in the United States.

The crypto community has expressed mixed reactions to the SEC’s case against Binance. Some have supported Binance and Zhao, arguing that the SEC is overreaching and stifling innovation in the crypto space. Others have criticized Binance and Zhao for being reckless and irresponsible with their business practices and customer funds.

The SEC’s case against Binance is one of the most significant enforcement actions against a crypto entity to date. It remains to be seen how the case will unfold and what impact it will have on the future of crypto regulation and innovation.