SEC Sues Binance and CEO for Alleged Securities Law Violations

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, and its CEO Changpeng Zhao. The lawsuit, filed in a federal court in Washington, D.C., alleges that Binance failed to comply with U.S. securities laws by not adequately restricting access to its platform for U.S. customers and misleading investors about its market surveillance controls. The SEC also claims that Binance operated an unregistered securities exchange.

The complaint accuses Binance and Zhao of improperly handling customers’ assets, allowing for the commingling and diversion of customer funds. The SEC alleges that Binance’s creation of separate U.S. entities was part of an elaborate scheme to evade U.S. federal securities laws. Additionally, the SEC claims that from three years ago until June 2022, Sigma Chain, a trading firm owned and controlled by Zhao, engaged in wash trading on the Binance.US platform, artificially inflating trading volumes.

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.”

Binance stated in a blog post its intention to vigorously defend the platform, emphasizing that Binance is not a U.S. exchange and questioning the reach of the SEC’s actions. The company also disputed allegations that user assets on the Binance.US platform were ever at risk.

The lawsuit against Binance and Zhao adds to the legal challenges facing the company, which include a suit by the U.S. Commodity Futures Trading Commission and investigations by the U.S. Department of Justice for alleged money laundering and sanctions violations.

Following the news, Bitcoin’s value dropped by as much as 6 percent, and Binance’s cryptocurrency, BNB, saw a decline of over 5 percent. The lawsuit’s implications are significant for Binance and the broader crypto industry, given Binance’s dominant position in crypto trading.

Binance, founded in Shanghai in 2017 and headquartered in the Cayman Islands, has faced scrutiny over its handling of payments and compliance with financial regulations. The company has denied allegations of commingling customer deposits and company funds.

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