SEC sues Binance, CEO over alleged securities violations

The SEC claims that Binance's poor financial controls resulted in the diversion of customer funds, potentially for personal purposes.

The US Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency exchange Binance and its CEO Changpeng Zhao, alleging multiple violations of federal securities laws.

The suit claims that Binance, Binance.US, and Zhao offered unregistered securities to the public, including the BNB token and the Binance-linked BUSD stablecoin. It also accuses Binance's staking service of violating securities laws.

The SEC's lawsuit further asserts that Binance failed to register as a clearing agency, broker, and exchange. Additionally, the commission alleges that Binance allowed the commingling of customer funds and that Zhao secretly controlled Binance.US, while a Zhao-owned entity inflated Binance.US's trading volume.

The lawsuit also identifies several other tokens, including SOL, ADA, MATIC, COTI, ALGO, FIL, ATOM, SAND, AXS, and MANA, as securities.

Millions in payments

The SEC claims that Binance's poor financial controls resulted in the diversion of customer funds, potentially for personal purposes. The suit alleges that Merit Peak Limited, previously linked to Zhao, had access to billions of US dollars of customer funds, while another Zhao-controlled entity, Sigma Chain, received nearly $200m from BAM Trading.

Zhao himself allegedly received $62.5m from a Binance bank account between October 2022 and January 2023.

According to the SEC, Zhao owned CPZ Holdings Limited, which, in turn, owned BAM Management Company Limited, which held 81% of BAM Management US Holdings Inc., the parent company of BAM Trading Services, which operates Binance.US.

The lawsuit also reveals internal struggles within Binance's US operations, with former CEOs expressing concerns about Zhao's control and influence.

The SEC references the “Tai Chi” documents, indicating Binance's plan to exit the US officially while maintaining a presence through an affiliate.

‘Regulation by enforcement'

Binance.US responded to the lawsuit, calling it an example of “regulation by enforcement” and labeling the allegations as baseless. Binance stated that it had cooperated with the SEC's investigations and was working toward a settlement.

The company emphasized the safety and security of user assets and vowed to vigorously defend against the allegations.

The SEC seeks to halt Binance's activities, including trading securities, and demands disgorgement of any ill-gotten gains, payment of civil penalties, and a bar on Zhao from serving as an officer or director of any securities issuer.

The lawsuit also aims to prevent the defendants from engaging in unregistered brokerage, clearing, or exchange activities involving crypto asset securities.

The SEC's lawsuit follows similar allegations brought by the US Commodity Futures Trading Commission (CFTC) against Binance and Zhao earlier this year for offering unregistered crypto derivatives products.

At the same time, the US Department of Justice (DOJ) is investigating Binance for possible breaches of Russian sanctions.

Just a day after filing the lawsuit against Binance, the SEC also went after cryptocurrency trading platform Coinbase for seemingly violating securities law.

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Written by Silvia Pavlof

Silvia has explored various forms of writing, ranging from content creation for social media to crafting movie scripts. Drawing on her experience as a journalist specializing in the gambling sector, she is currently investigating the impact of cryptocurrencies and blockchain on traditional gambling and iGaming.

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