Key points to remember
- The SEC has filed another document that accuses Binance of mixing funds and putting investors at risk.
- These charges follow an initial lawsuit filed against Binance, as well as a restraining order to freeze assets.
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The U.S. Securities and Exchange Commission (SEC) has extended legal proceedings against Binance.US after its initial lawsuit against the exchange, claiming the industry’s largest exchange posed significant risk to investors’ funds, in a new document filed on June 5.
Binance CEO Changpeng “CZ” Zhao, BAM Management, BAM Trading and Binance have been accused of hoarding billions of dollars while putting investors’ assets at risk, according to the document.
Binance and CZ deliberately circumvented US regulatory oversight by offering securities-related services to US users, leading to the potential compromise of billions of US investor capital:
“Zhao’s stated ‘goal’ was ‘to reduce losses for ourselves, and at the same time keep US regulators out of our way.'”
A CNBC report further suggested that “$2.2 billion in US client assets held by Binance are at ‘significant risk’ of being stolen by founder Changpeng Zhao unless a freezing order is put in place”. Accused of mixing client funds, Binance and Binance.US opened an account managed by Merit Peak Limited, an entity allegedly controlled by Zhao. The funds were then transferred to a third party, supposedly linked to the trading of cryptocurrency assets, according to the SEC.
Regulators said this type of setup gives Zhao unchecked authority over billions of dollars of assets deposited on the Binance.US platform, with inadequate oversight or controls to ensure asset safety:
“This agreement has given and continues to give Zhao and Binance carte blanche to manage billions of dollars of crypto assets that customers have deposited, held, traded and/or accumulated on the Binance.US platform without oversight or control. to ensure that the assets are properly secured.
The SEC went further and deposit a restraining order against Binance on June 6 to freeze assets, citing mismanagement of user funds and unrecorded corporate actions. Binance.US has maintained that user funds on the platform remain safe despite SEC efforts to freeze assets, indicating on Twitter on June 6, “Users’ assets remain safe and secure and the platform continues to be fully operational with deposits and withdrawals operating as normal.”
