US Securities Market Watchdog sued Binance, world’s biggest crypto exchange. It accused it of violating laws, including mixing billions in customer funds with a separate firm owned by the chief executive.
The Securities and Exchange Commission filed 13 civil charges against Binance and Changpeng Zhao on Monday, the latest in a series of regulatory actions that have been taken since March, when another US financial agency had sued the company.
Allegations include operating unregistered brokers, clearing agencies and exchanges as well as misleading trading controls and oversight of Binance’s US Platform. The SEC’s complaint stated that between mid-2018 and mid-2021 the group generated at least $11.6bn of revenue.
The SEC claimed Binance and Zhao controlled client assets. This allowed funds to be merged, or rerouted. Billions of dollars were sent to Merit Peak Limited, a cryptocurrency asset trading company incorporated in British Virgin Islands, owned by Zhao.
The SEC also claimed that Zhao had diverted assets to Sigma Chain, a separate entity controlled and owned by Zhao. Sigma Chain was said to have engaged in “manipulative” trading, which inflated Binance US’ trading volume.
Gary Gensler said, “Through thirteen charges, we accuse Zhao and Binance of engaging in an extensive web deception, conflicts, lack of disclosure and calculated evasion,”
Binance.com, Binance’s offshore trading platform said that it was disappointed and dismayed by the SEC’s action. It added that, while it takes the regulator’s allegations seriously, “they should not be the target of an SEC Enforcement Action”. Binance US called this lawsuit “baseless”.
The SEC alleged Binance and Zhao had “publicly stated” that US customers were banned from Binance.com but “subverted” their own controls in order to “secretly allow” the top US clients to be able to trade on Binance.com.
The SEC has alleged that Zhao and Binance knew about the rules, but chose to ignore them, putting their customers and investors in danger, all to maximize their profits.
According to the SEC’s complaint, Binance’s unnamed chief Compliance Officer in 2018 told a coworker: “We operate as a fking nonlicensed securities exchange here in the USA. Bro.”
The SEC action comes after the US Commodity Futures Trading Commission (a regulator of derivatives markets) filed a suit in March against Binance, alleging that it had illegally served US clients and that much its reported trading volume, as well as profitability, were due to “extensive access and solicitation” of US customers.
Charley Cooper, a CFTC former chief of staff, said that “battle two powerful regulators simultaneously will take time and resources. Binance will feel the impact.”
Binance stated that “the SEC’s actions appear to be a part of a hasty effort to claim jurisdictional grounds from other regulators – and investors don’t appear to the SEC’s priority”.
Also in March, revealed binance, which for years claimed not to have a formal headquarters. Binance has been hiding extensive links with China.
A month before, New York regulators had stopped the issuance of Binance’s stablecoin. This was a digital token which allowed crypto traders quick entry and exit from the market. The coin BUSD represented approximately 40% of Binance’s total trading volume before it was shut down.