On June 5 the U.S. Securities and Exchange Commission (SEC) filed 13 charges against Binance and its affiliates, including the operation of unregistered exchanges, broker-dealers, and clearing agencies, misrepresenting trading controls and oversight on the Binance.US platform, and the unregistered offer and sale of securities in the District Court for the District of Columbia.
“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms,” - said SEC Chair Gary Gensler.
The SEC charged Binance Holdings Ltd., Binance.com, BAM Trading Services Inc. (its U.S.-based affiliate, which, together with Binance, operates Binance.US) and their founder, Changpeng Zhao, with a variety of securities law violations.
According to the SEC allegations:
BAM Management and BAM Trading were created in 2019 as part of a scheme to evade U.S. federal securities laws
The assets staked via BAM were under the secret control of Binance
Another company owned by CZ, Sigma Chain, was also engaged in manipulating users’ assets and artificially inflating the platform’s trading volume to mislead users and investors.
Some of the users’ assets were sent to a third party, Merit Peak Limited, also owned by Zhao.
“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits,” - said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
The SEC is demanding permanent enjoinment on Binance, CZ and other entities controlled by them from any further activities connected to crypto, disgorgement of ill-gotten gains and additonal financial penalties. It states that CZ should also be barred from acting as an officer or director of any issuer whose securities are registered with the SEC.
Binance immediately responded to the accusations in a blog post, saying that the company has “actively cooperated with the SEC’s investigations and have worked hard to answer [SEC’s] questions and address [its] concerns.” The exchange stressed that SEC’s actions “undermine America’s role as a global hub for financial innovation and leadership”. Binance also hinted at the unresolved battle between the SEC and CFTC about which organization has the authority to regulate crypto assets.
Binance.US also commented on the situation, saying that the lawsuit is baseless and the company intends to defend itself vigorously. The company also called on Congress to step in and create a proper regulatory regime for digital assets.
Binance promised to fight the case to the full extent, and SEC seems to be serious about holding the company accountable for their actions. We will Observe how the battle develops and keep you updated.