Long anticipated and finally here, the Securities and Exchange Commission (SEC) has filed 13 charges against Binance and its founder and CEO, Changpeng Zhao.
Binance is the largest crypto exchange in the world, garnering around 60% of crypto trading. Zhao, who goes by CZ, is the most prominent crypto advocate and entrepreneur in the world.
The SEC has filed charges against Zhao, Binance, and U.S.-based affiliate, BAM Trading Services Inc.
The SEC claims that the defendants claimed that U.S. customers were restricted from transacting on Binance.com, but allegedly this was not the case. At the same time, Binance.US was said to be operated independently of Binance but the SEC says it was secretly controlled by the parent company behind the scenes.
As has been previously rumored, consumer funds were allegedly co-mingled with the SEC naming Sigma Chain as an entity controlled by Zhao that apparently utilized consumer funds. The SEC’s complaint says that Sigma Chain “engaged in manipulative trading that artificially inflated the platform’s trading volume.”
Another Zhao-controlled entity Merit Peak Limited allegedly was used to conceal the “commingling billions of dollars of investor assets.”
Other charges include:
- Binance and BAM Trading with operating unregistered national securities exchanges, broker-dealers, and clearing agencies;
- Binance and BAM Trading with the unregistered offer and sale of Binance’s own crypto assets, including a so-called exchange token, BNB, a so-called stablecoin,
- Binance USD (BUSD), certain crypto-lending products, and a staking-as-a-service program; and
- Zhao as a control person for Binance’s and BAM Trading’s operation of unregistered national securities exchanges, broker-dealers, and clearing agencies.
SEC Chairman Gary Gensler commented on the charges claiming that Binance and Zhao knew the rules of the road but flouted them.
“By engaging in multiple unregistered offerings and also failing to register while at the same time combining the functions of exchanges, brokers, dealers, and clearing agencies, the Binance platforms under Zhao’s control imposed outsized risks and conflicts of interest on investors. Those risks and conflicts are only heightened by the Binance platforms’ lack of transparency, reliance on related-party transactions, and lies about controls to prevent manipulative trading. Despite their years-long efforts to not ‘be held accountable,’ today’s complaint begins the process of doing so,” said Gensler.
The SEC’s complaint alleges:
- Operation of an unregistered exchange, broker and clearing agency
- Unregistered off and sale of crypto assets
- Failure to restrict US investors from accessing Binance.com
- Misleading investors
Binance is the big dog of crypto and a fat target for regulators. While the SEC may eventually settle with Binance and Zhao, the fact that Binance is so foundational to the entire crypto industry may compel the SEC to move in for the kill.
The SEC’s complaint, available below and here, will have been in the works for many months, if not years.
The SEC is demanding that the Court order temporary and preliminary injunctive relief, including asset freezes, a verified accounting, repatriation of assets, expedited discovery, preservation of documents and information, prohibition on the destruction of evidence, the appointment of a receiver, alternative service, and/or any other necessary equitable relief that the Court deems just and proper.