Key points to remember
- The SEC sued Binance and CZ on 13 charges of buying, selling and trading unregistered securities, mixing client funds and more.
- This lawsuit follows in the footsteps of the CFTC suing Binance in March, alleging a violation of federal securities laws.
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The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, one of the world’s largest cryptocurrency exchanges, and its CEO, Changpeng “CZ” Zhao, according to an official announcement from the SEC.
The regulatory body is to accuse Binance on 13 charges of ignoring numerous federal securities regulations, including allegations of operating an unauthorized exchange under Binance.com and Binance.US. The official file below States:
“This case arises out of the defendants’ flagrant disregard for federal securities laws and the investor and market protections those laws provide.”
Despite publicly stating that US customers are not allowed to transact on Binance.com, the SEC alleges that Zhao and “Binance actually overthrew their own controls to covertly allow high-value US customers to continue trading on the Binance.com platform:”
“Further, the SEC alleges that while Zhao and Binance have publicly asserted that Binance.US was created as a separate and independent trading platform for U.S. investors, Zhao and Binance covertly control the operations of the Binance platform. US behind the scenes.”
CZ took to Twitter before the SEC released the official announcement, tweeting a “4,” signifying ignore FUD, or Fear, Uncertainty and Doubt:
4.
Our team is on your side to ensure the systems are stable, including withdrawals and deposits.
We will post a response once we see the complaint. I have not seen it again. The media get the information before us.
🙏
— CZ 🔶 Binance (@cz_binance) June 5, 2023
The charges extend to handling client assets, mixing client funds and diverting them to Zhao-owned entity Sigma Chain. BAM Trading and BAM Management US Holdings, the companies that run Binance.US with Binance, are accused of misleading “investors about non-existent trading controls on the Binance.US platform”, while Sigma Chain allegedly engaged in manipulative trading practices that “inflated the platform’s trading volume.
The SEC lawsuit, filed in the U.S. District Court for the District of Columbia, accuses the trading platforms of violating securities related to federal registration. Both Binance and BAM Trading are responsible for operating unregistered domestic stock exchanges, brokers and clearing agencies, as well as the unregistered offering and selling of BNB and Binance USD (BUSD) stablecoins , among other parts. The SEC holds Zhao personally responsible for these alleged registration violations.
SEC Chairman Gary Gensler warned the public to beware of investing their assets with or on such illegal platforms, stating in the press release:
“Through thirteen counts, we allege that the Zhao and Binance Entities engaged in an extensive web of deceit, conflict of interest, lack of disclosure, and calculated evasion of the law.”
Gurbir Grewal, Director of the SEC’s Enforcement Division, reinforced Gensler’s warnings by stating, “Zhao and Binance entities not only knew the rules of the road, but also consciously chose to circumvent them and to put their clients and investors at risk – all with the aim of maximizing their own profits.
These SEC allegations follow the Commodity Futures Trading Commission lawsuit against Binance. The CFTC had targeted the crypto exchange and its CEO in March, claiming they knowingly facilitated the trading of unregistered crypto derivatives in the United States, a clear violation of federal law. Genser added:
“Despite their years-long efforts not to ‘be held accountable,’ today’s complaint sets the process in motion.”
