Ovunc Kutlu
05 June 2023•Update: 05 June 2023
ISTANBUL
Cryptocurrency trading platform Binance and its founder and CEO Changpeng Zhao were sued for violating a number of US securities laws, the Securities and Exchange Commission (SEC) announced Monday.
The market watchdog filed a total of 13 charges against Binance entities and Zhao, some of which included operating 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.
The SEC alleges that while Zhao and Binance publicly claimed that American customers were restricted from transacting on Binance.com, they in reality subverted their own controls to secretly allow high-value US customers to continue trading on the Binance.com platform.
The regulator also said that while Zhao and Binance publicly claimed that Binance.US was created as a separate and independent trading platform for American investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes.
"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," 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," he added.
The SEC's complaint, which was filed in the US District Court for the District of Columbia, claims that Binance.com and Binance.US, while controlled by Zhao, earned at least $11.6 billion revenue from transaction fees from American customers since at least July 2017.
The regulator's claims come less than three months after the US' Commodity Futures and Trading Commission argued that Binance "actively solicited" users in the US by "actively cultivating lucrative and commercially important ‘VIP’ customers, including institutional customers, in the United States."
"Binance has never been registered with the CFTC in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets, including laws that require the implementation of controls designed to prevent and detect money laundering and terrorism financing," it said in a March 27 filing in the US District Court for the Northern District Of Illinois.
Zhao said the company is "all standing by, ensuring systems are stable, including withdrawals, and deposits," and wrote the number "4" on a Twitter post.
Binance's own coin, or blockchain-based native token BNB, ranks fourth in market value among cryptocurrencies, as it plummeted 9.6% to $276.67 as of 2.53 p.m. EDT.
With panic selling among crypto investors, price of Bitcoin was down 5.8% to $25,611 at the time, while total value of the crypto market lost more than 5.5% to $1.09 trillion, according to data from the digital asset price-tracking website CoinMarketCap.
Binance, in a statement, said it has actively cooperated with the SEC’s investigations and recently reached a negotiated settlement to resolve investigations.
"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. We intend to defend our platform vigorously," it said.
"Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry," it added.
The company said the SEC’s actions undermine the US' role as a global hub for financial innovation and leadership, and argued "regulation by enforcement is not the best path forward."
