On Monday, the U.S. Securities and Exchange Commission (SEC) brought a series of charges against Binance, marking one of the agency’s most significant enforcement actions against the crypto industry. history.
Let’s take a look at the regulator’s most startling allegations against the exchange, as well as Binance’s response to its claims.
What did Binance do?
THE File of 136 pages accused Binance and Binance US of participating in “unregistered bids and sales” of crypto asset securities, while performing the function of an “exchange, broker and clearing agency” without prior registration.
Among its illegal securities offerings were its “BNB Vault” and “Simple Earn” yield-generating systems, alongside the platform’s native token BNB and its stablecoin BUSD. BNB is currently the 4th largest cryptocurrency by market capitalization, and Binance holds a significant share of its total supply.
Without the oversight typical of registered exchanges and brokers, the SEC said Binance also moved and mixed client assets in ways that regulated firms could not.
For example, the agency said that Binance and Binance US have blended billions of dollars of user assets from both platforms into an entity called “Merit Peaked Limited”, which is controlled by both Binance and Binance. its CEO, Changpeng Zhao (CZ).
These assets were then transferred to third parties – like what former FTX boss Sam Bankman-Fried did on his now-collapsed exchange.
Overall, the lawsuit claims that Binance and CZ exercised control over Binance US and its platform assets, despite the claim of independence from the US entity.
He also accused Binance of secretly continuing to serve its most valuable US clients on the international exchange, as alleged by the Commodities and Futures Trading Commission in March.
Finally, the SEC alleged that an entity controlled by Zhao called “Sigma Chain” engaged in sham trading at Binance US to inflate the trading volume and valuation of certain assets on the platform. This was possible because the entity did not put in place the “transaction monitoring or manipulation controls” that company management promised investors.
Binance Punishment and Response
As punishment for its violations, the SEC is seeking to completely ban Binance from securities and crypto trading activities and pay restitution penalties for all of its ill-gotten gains from its actions, plus prejudgment interest.
In a public reply letterBinance accused the SEC of not prioritizing investors, but rather trying to gain “jurisdictional ground” by overseeing crypto over other regulators.
“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any claims to the contrary,” the company wrote.
Binance denied claims made by Reuters last month that it mixed user funds with corporate funds, saying any “mixing” that occurred was simply to convert users’ dollar deposits into BUSD.
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