Monday, June 05, 2023
The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao, accusing them of operating a "web of deception."
The legal action has intensified the pressure on Binance, resulting in a significant drop in the value of Bitcoin to its lowest point in nearly three months.
The complaint, lodged by the SEC in a federal court in Washington, DC, lists 13 charges against Binance, Zhao, and the operator of its purportedly independent US exchange. The regulatory agency alleges that Binance engaged in artificial inflation of trading volumes, diversion of customer funds, failure to enforce restrictions on US customers, and dissemination of misleading information about its market surveillance controls.
Furthermore, the SEC claims that Binance and Zhao, a billionaire founder and prominent figure in the crypto industry, secretly controlled customers' assets, allowing them to co-mingle and redirect investor funds as they pleased. The SEC also contends that Binance established separate entities within the United States as part of an intricate scheme to evade federal securities laws. These practices were previously highlighted in investigative reports published by Reuters in 2022 and this year.
The SEC's complaint additionally reveals that a trading firm owned and controlled by Zhao, Sigma Chain, was involved in wash trading, a manipulative practice that artificially inflated the trading volume of crypto asset securities on Binance.US, from almost three years ago until June 2022.
SEC Chair Gary Gensler stated, "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." In response, Binance released a blog post vowing to vigorously defend its platform and asserting that the SEC's actions are limited in reach due to Binance not being a US exchange. They reassured users that all their assets, including those on Binance.US, are safe and secure.
The lawsuit had an immediate impact on the crypto market, with Bitcoin, the world's largest cryptocurrency, dropping by as much as 6%, reaching its lowest value in nearly three months. Binance's native cryptocurrency, BNB, the fourth-largest by market size, also experienced a decline of over 5%.
Industry experts anticipate that the SEC's allegations will significantly impede Binance's operations and reverberate throughout the crypto industry. Binance currently dominates crypto trading, with the exchange processing daily trades worth approximately $65 billion, representing up to 70% of the market.
This SEC complaint is the latest in a series of legal challenges for Binance, as it faced a lawsuit from the US Commodity Futures Trading Commission (CFTC) in March, accusing it of operating an "illegal" exchange and having a "sham" compliance program. Binance is also under investigation by the US Justice Department for suspected money laundering and sanctions violations.
While Binance was founded in Shanghai in 2017 by CEO Zhao, a Canadian citizen of Chinese descent, the exchange's holding company is based in the Cayman Islands. Binance has chosen not to disclose the location of its main Binance.com exchange, claiming to lack a headquarters. The SEC alleges that Zhao orchestrated a plan to covertly evade US laws, and it highlights instances of commingling customer funds with corporate revenues, which Reuters previously reported.