- June 7, 2023
- Posted by: [email protected]
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Binance, a leading cryptocurrency exchange, has been accused by the United States Securities and Exchange Commission (SEC) of operating illegally and failing to register as a securities exchange in the United States. On June 5, the SEC filed a complaint in the District Court for the District of Columbia against Binance, its CEO, Changpeng Zhao (CZ), and its U.S. platform.
The SEC has levied 13 charges against Binance, including the unregistered sale of tokens such as BNB and Binance USD, as well as the offering of products like Simple Earn, BNB Vault, and the staking program. According to the lawsuit, Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency, and Binance.US, Binance’s legal entity in the United States, also failed to register as an exchange, broker, and clearing agency. CZ is being sued for being a “controlling person” in the case.
The SEC’s lawsuit claims that Binance has enriched itself with billions of dollars while putting investors’ assets at significant risk. It further alleges that Binance engaged in multiple unregistered sales of crypto asset securities and other investment schemes. The suit also accuses Binance.US of defrauding investors by making false claims about surveillance and controls over manipulative trading on its platform.
Among the charges, the SEC alleges that Binance failed to prevent U.S. investors from using its Binance.com platform and that Binance.US engaged in wash trading, a manipulative trading practice, through its undisclosed market-making firm, Sigma Chain. The suit also claims that funds from Binance and Binance.US were mixed together in an account controlled by Merit Peak Limited, which is associated with CZ. Similar complaints were previously filed by the Commodity Futures Trading Commission.
SEC Chair Gary Gensler stated that Binance and CZ misled investors about risk controls, manipulated trading volumes, and concealed information about the platform’s operations and custodial arrangements for investor funds and crypto assets.
The SEC is seeking a permanent injunction against Binance and CZ to prevent further activities, as well as disgorgement of ill-gotten gains with interest and financial penalties. The lawsuit asserts that tokens traded on the Binance exchange, including BNB, BUSD, and others such as Solana, Cardano, and Filecoin, are considered securities.
Binance and Binance.US have responded separately to the lawsuit. Binance.US criticized the SEC’s claims as an example of “regulation by enforcement” and declared its intention to vigorously defend itself. Binance.com stated in a blog post that they have cooperated with the SEC’s investigations and disagree with the emergency enforcement action taken against them.
Allegations against Binance are not new, as reports suggest that an SEC investigation into the exchange began in June 2022. Binance has dismissed allegations of mismanagement of funds as “conspiracy theory.”
