The US stock market watchdog has sued Binance, the world’s largest cryptocurrency exchange, accusing it of abuses including mixing billions of dollars of customer funds with a separate trading firm owned by its CEO.
The 13 civil charges filed Monday by the Securities and Exchange Commission are the latest regulatory blow to Binance and its chairman, Changpeng Zhao, after another US financial agency sued it in March.
The allegations include operating unregistered exchanges, brokers, dealers, and clearing agencies as well as misrepresenting trading controls and oversight of the US-based Binance exchange. Between mid-2018 and mid-2021, the group generated at least $11.6 billion in revenue, according to the SEC complaint.
The SEC alleged that Binance and Zhao controlled clients’ assets allowing funds to be merged or redirected, with billions of dollars being sent to a BVI-based crypto-asset trading firm owned by Zhao called Merit Peak Limited.
The assets were also allegedly transferred to a separate entity owned and controlled by Zhao, Sigma Chain, which the SEC said engaged in “manipulative trading” that inflated the trading volume of US exchange Binance.
“With 13 counts, we allege that the Zhao and Binance entities engaged in a wide web of deception, conflict of interest, lack of disclosure, and calculated evasion of the law,” said Gary Gensler, SEC Chairman.
Binance.com, Binance’s offshore trading platform, said it was disappointed and frustrated by the SEC’s action and added that while it takes the regulator’s allegations seriously, “they should not be the subject of an SEC enforcement action.” US Binance called the lawsuit “baseless.”
The SEC alleged that although Binance and Zhao “publicly claimed” that US clients were banned from Binance.com, they “subverted their own controls to secretly allow” large US clients to trade on the platform.
“We argue that Zhao and Binance entities not only know the rules of the road, but also consciously choose to evade them and put their customers and investors at risk — all in an effort to maximize their own profits,” said Gurbir Grewal, director of the SEC’s Enforcement Division.
According to the SEC complaint, Binance’s chief compliance officer told a colleague in 2018, “We operate as an unlicensed fking securities exchange in the United States of America.”
The SEC’s action comes weeks after the US derivatives markets regulator, the CFTC, filed a lawsuit in March against Binance alleging that it illegally served US clients, and that much of its reported trading volume and profitability came from of “widespread solicitation and reach” of US clients.
“Fighting two powerful regulators at the same time would take precious time and resources, and Binance will no doubt feel the impact,” said Charlie Cooper, former CFTC chief of staff.
“The SEC’s actions here appear to be part of a rushed effort to claim courtroom ground from other regulators — and investors don’t appear to be a priority for the SEC,” Binance said.
Also in March, the Financial Times revealed that Binance – which has long claimed it has no official headquarters – hid extensive links with China for several years.
One month ago, regulators in New York closed an additional issuance of a Binance-branded stablecoin, a type of digital token that allowed cryptocurrency traders to quickly move in and out of the market. Prior to the closing of the coin, called BUSD, it accounted for nearly 40 percent of Binance’s trading volume.
“Typical beer advocate. Future teen idol. Unapologetic tv practitioner. Music trailblazer.”
More Stories
What do you know this week?
Assessing Solana’s ecosystem and how Jito will help it grow
Five things to know about Biden’s controversial retirement rule