SEC Alleges Binance, Binance.US, and CEO Changpeng Zhao Violated Securities Law
- The U.S. regulator has alleged that the platforms offered unregistered securities to the general pubic in the form of the BNB token and BUSD stablecoin.
- Binance was also accused of failing to register as an exchange, and that it had comingled funds between its global and U.S. platforms.
Changpeng Zhao, Co-Founder & CEO of Binance, during day one of Web Summit 2022 at the Altice Arena in Lisbon, Portugal, 2 November, 2022. Ben McShane/Web Summit via Sportsfile
The U.S. Securities and Exchange Commission (SEC) has taken legal action against major crypto exchange Binance, along with its U.S. platform and CEO Changpeng (CZ) Zhao, the regulator said in a press release on 5 June.
In its complaint, the SEC alleges that CZ and his companies offered unregistered securities in the form of the BNB token and the BUSD stablecoin, in addition to violating securities law through the Simple Earn, BNB Vault, and staking program. The SEC also accused Binance.com and BAM Trading — the operating company of Binance.US — of failing to register as a clearing agency, broker, and exchange.
The lawsuit claimed that several digital assets traded on the platforms were securities, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI. The SEC further alleged that there were commingled funds between Binance and Binance.US, which were located in an account controlled by Merit Peak Limited, a separate investment fund owned by CEO Changpeng Zhao that inflated the trading volume of Binance.US.
The court documents also allege multiple times that Binance allowed U.S. citizens to trade crypto on its global platform Binance.com, despite claiming to have restricted their access. SEC Chair Gary Gensler went as far as to accuse Binance and CZ of engaging in an “extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law”. He 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.”
Binance quickly responded to the lawsuit in a blog post, saying that it had actively cooperated with the SEC’s investigations and answered all their questions. The platform also stated that “any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong”. Binance.US responded separately via Twitter, saying that the SEC claims were its “latest example of regulation by enforcement”, and that it intends to “defend ourself vigorously”.
The SEC’s announcement had an immediate effect on the crypto market, with Bitcoin — the largest cryptocurrency by market cap — going down by 5.7% to trade at $25,650. Most of the tokens mentioned in the SEC lawsuit also took a significant hit, with those on the list declining between 5% and 10%.
- The popular crypto exchange has decided to sell its business in Russia to CommEX, a crypto exchange business that was officially launched on Tuesday.
- Binance noted that it will fully exit the Russian market, and have no ongoing revenue split or any option to buy back shares in the business.
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- The company said it will be suspending its crypto-backed debit card service in the Middle East on 25 August, and in Latin America by 21 September.
- Although no reason was given for the decision, the company noted that “less than 1% of users” in those regions will be affected by the change.
- A spokesperson said the change was due to the “changing market and user needs”, and that Binance will now be refocusing its resources on its main products and long-term goals.
- Launched in March 2022, Binance Connect helped crypto businesses connect with the traditional finance system, and supported 50 cryptocurrencies and networks such as Visa and Mastercard.