The United States Securities and Exchange Commission charged Binance Holdings Ltd. and its founding chief executive, Changpeng Zhao, with breaching securities laws. The SEC has also named a Binance affiliate, BAM Trading Services Inc., in the lawsuit. It was of major assistance to the company’s operation of the U.S. version of its cryptocurrency exchange. Binance, BAM, and Zhao are facing a total of 13 charges.
“Through thirteen charges, 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.
Why is SEC suing Binance?
Binance is the largest cryptocurrency trading platform in the world. Since July 2017, the company’s worldwide and US cryptocurrency exchanges have produced at least $11.6 billion in revenue, according to the SEC. A portion of that revenue comes from transaction fees paid by users in the United States.
Companies that provide certain types of securities-related financial services are required by the SEC to register their activity. According to the lawsuit filed yesterday, Binance and BAM both failed to register with the agency as exchange operators and broker-dealers. Furthermore, the SEC alleges that the companies operated an unregistered clearing house, a service that aids in the processing of securities transactions.
The second section of the agency’s lawsuit focuses on the financial goods which Binance offers via its platform. The SEC has charged the crypto exchange with offering and selling its two internally produced cryptocurrencies, BNB and BUSD, without a license. Binance is also accused of failing to register two crypto-lending products.
BAM, the affiliate company implicated in the case, provided a staking-as-a-service program to customers of Binance’s cryptocurrency exchange in the United States. Staking is a scheme that allows users to earn financial benefits for holding a cryptocurrency for a set period of time. The initiative violated SEC registration standards, according to the lawsuit.
Binance US, the company’s US exchange, debuted four years ago. At the time, the business indicated that the exchange would function independently of the international version of the platform. Furthermore, Binance stated that US customers would not be able to access the international version.
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The SEC claims that the business nonetheless permitted some US clients to view the overseas version. Binance is said to have “subverted their own controls” in order to do so. “While Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes,” according to the SEC.
The agency has also charged Binance and Zhao with deceiving US customers and investors. According to the SEC, Zhao’s company, Sigma Chain, engaged in large-scale wash trading on Binance. US. Market manipulation takes the form of wash trading.
According to the SEC, Sigma Chain was also involved in a plot to “commingle or divert customer assets.” Merit Peak Limited, another company owned by Zhao, is said to have also taken part. The SEC estimates that the affected customer assets are worth billions of dollars.
“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits,” said Gurbir Grewal, director of the SEC’s enforcement division.
The SEC lawsuit complements charges made by the Commodity Futures Trading Commission (CFTC) in March of this year that Binance and its founder, Changpeng Zhao, intentionally provided unregistered crypto derivatives products in the United States in violation of federal law. Many of the charges in the SEC’s case are similar to those in the CFTC’s complaint.
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