By:
The regulator has found that Binance operated illegally in the United States by failing to register as a securities exchange.
On June 5, the United States Securities and Exchange Commission (SEC) took legal action against Binance, including its U.S. platform and CEO Changpeng Zhao (CZ), by filing a lawsuit in the District Court for the District of Columbia.
Binance faces 13 charges pressed by the U.S. regulator, including unregistered offers and sales of BNB and BUSD tokens and violations related to products like Simple Earn, BNB Vault, and the staking program. The lawsuit alleges that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. It also claims that Binance and BAM Trading operated without proper exchange, broker, and clearing agency registration. CEO Changpeng Zhao (CZ) has been named in the lawsuit as a “controlling person.”
According to the suit:
“Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk. […] Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes.”
The lawsuit continues that BAM Trading and BAM Management deceived equity, retail, and institutional investors by providing false information regarding the presence of robust surveillance and controls to prevent manipulative trading on the Binance.US Platform. However, it was revealed that these claimed measures were virtually non-existent.
The charges brought against Binance include allegations of Binance.com’s failure to impose restrictions on U.S. investors and Binance.US’s involvement in wash trading facilitated by its undisclosed “market making” trading firm, Sigma Chain, which CZ owns.
Moreover, it is claimed in the lawsuit that funds from Binance and Binance.US were combined in an account managed by Merit Peak Limited, which is affiliated with CZ. The Commodity Futures Trading Commission filed these allegations complaints on March 27. CZ refuted these charges in a detailed blog post.
SEC chair Gary Gensler said in a statement:
“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.”
The Securities and Exchange Commission (SEC) is seeking a permanent injunction against Binance and CZ, preventing them from engaging in future activities. Additionally, the SEC requests the disgorgement of unlawfully obtained profits, accrued interest, and imposing financial penalties.
The suit claimed that tokens traded on the Binance exchange were securities. Those tokens are BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.
Binance and Binance.US issued separate responses to the lawsuit. Binance.US, in a tweet, described the SEC’s claims as another instance of “regulation by enforcement.” The suit “is baseless, and we intend to defend ourselves vigorously,” it continued.
In a blog post on Binance.com, the company wrote:
“From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. […] While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis.”
Binance.com denied any allegations of user assets being at risk on the Binance.US platform, considering them false. They suggested that the SEC’s actions may be driven by a desire to quickly claim jurisdiction over other regulators, with investor priorities seemingly not being the SEC’s primary concern.
The allegations against Binance are not new, with an SEC investigation reportedly initiated in June 2022. Binance has called reports of mismanagement of funds “conspiracy theory”.
Reading More:
