US SEC sues world’s largest crypto exchange Binance and founder

The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao. The SEC alleges that Binance operated an unregistered securities exchange and failed to register as a broker-dealer. The SEC also alleges that Binance engaged in market manipulation and misled investors about its trading volume.

The lawsuit is the latest in a series of regulatory actions against Binance. In May, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance alleging that it failed to register as a futures commission merchant. The CFTC also alleged that Binance engaged in market manipulation and wash trading.

Binance has denied the allegations in both lawsuits. The company has said that it is “committed to complying with all applicable laws and regulations.”

The SEC’s lawsuit is a significant development for the cryptocurrency industry. It is the first time that the SEC has filed a lawsuit against a major cryptocurrency exchange. The lawsuit could have a chilling effect on the cryptocurrency industry and could lead to more regulatory scrutiny.

Here are some of the key allegations in the SEC’s lawsuit:

• Binance operated an unregistered securities exchange.
• Binance failed to register as a broker-dealer.
• Binance engaged in market manipulation.
• Binance misled investors about its trading volume.

The SEC is seeking a number of remedies in the lawsuit, including:

• An injunction prohibiting Binance from operating an unregistered securities exchange.
• An injunction prohibiting Binance from engaging in market manipulation.
• An injunction prohibiting Binance from misleading investors about its trading volume.
• Monetary damages.

The lawsuit is still in its early stages. It is not yet clear how the case will be resolved. However, the lawsuit is a significant development for the cryptocurrency industry and could have a major impact on the future of the industry.

Binance created separate US entities “as part of an elaborate scheme to evade US federal securities laws”, the SEC also alleged.

From almost three years ago until June 2022, a trading firm owned and controlled by Zhao, Sigma Chain, engaged in so-called wash trading that artificially inflated the trading volume of crypto asset securities on the Binance.US platform, the SEC also alleged.

“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said SEC Chair Gary Gensler said in a statement.

In a blog post, Binance said: “We intend to defend our platform vigorously,” adding that “because Binance is not a US exchange, the SEC’s actions are limited in reach.”

Binance.US, which is ultimately controlled by Zhao, said in a tweet that the lawsuit was “unjustified by the facts, by the law, or by the Commission’s own precedent.”

Bitcoin, the world’s biggest cryptocurrency, fell as much as 6 percent on the news to its lowest in almost three months. Binance’s own cryptocurrency BNB, the world’s fourth-largest by market size, dropped more than 5 percent.

‘Big risk’

The move is the latest in a series of legal woes for Binance, which was also sued by the US Commodity Futures Trading Commission in March for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance programme. Zhao called those charges “disappointing” and an “incomplete recitation of facts”.

Reuters also reported on May 23 that Binance commingled its customers’ funds with its corporate revenues in a Silvergate Bank account belonging to trading firm Merit Peak in breach of US financial rules that require client money to be kept separate.

Binance denied mixing customer deposits and company funds, saying that users who sent money to the account were not making deposits but rather buying Binance’s bespoke dollar-linked crypto token.