SEC Charges Binance, CEO over Illegal Exchanges, Commingling of Client Fund

The Securities and Exchange Commission (SEC) has filed 13 charges against the cryptocurrency exchange, Binance, two affiliated entities and the Founder/CEO Changpeng Zhao. The US securities watchdog accused Binance and Zhao of operating illegal trading platforms, offering unregistered crypto asset securities and commingling customers’ funds.

Additionally, it alleged that Binance operated as an exchange, broker-dealer and clearing agency without authorization. The US derivatives watchdog, the Commodity Futures Trading Commission (CFTC), made similar allegations against Binance and Zhao two months ago.

Binance Faces Multiple Allegations

In a complaint filed before a district court in Columbia, the SEC alleged that Binance Holdings operated unregistered crypto exchanges Binance.com and Binance.US (the US affiliate). In addition, the regulator accused Binance of tweaking its controls to enable high-value US customers to trade on Binance.com, contrary to the exchange’s public claim that US clients were barred from the platform.

In addition, the SEC alleged that affiliated entities BAM Trading and BAM Management together with Binance offered and sold the crypto exchange’s unregistered token and stablecoin, BNB and BUSD, respectively, on the Binance.US platform. On top of that, they allegedly provided unregistered profit-generating programmes ‘BNB Vault’ and ‘Simple Earn’ as well as crypto staking products, to US investors.

1/ BREAKING: SEC sues BinanceHEADLINE: The SEC complaint identifies 10 tokens it deems to be unregistered crypto asset securities.The target list includes some of the biggest names in crypto:$SOL, $ADA, $MATIC, $FIL, $ATOM, $SAND, $MANA, $ALGO, $AXS, and $COTI. more...

Moreover, the SEC accused Zhao and Binance of secretly controlling the US affiliate despite claiming publicly that it is “a separate, independent trading platform for US investors,” according to a statement.

More Allegations

Finance Magnates reported in February that the SEC was investigating Binance.US and two of its affiliated market makers, Sigma Chain AG and Merit Peak Limited. The platforms are said to have started trading on Binance's US trading arm following its launch in 2019.

In the latest action, the SEC appears to have concluded the investigation as the regulator alleged that Zhao and Binance’s access to Binance.com and Binance.US gave them the opportunity to commingle customer assets or divert them to Sigma Chain, the market maker and trading firm which is said to be owned and controlled by Zhao. In addition, both parties allegedly merged ‘billions of dollars of investor assets’ and sent them to Merit Peak Limited, which is also owned by Binance's Founder. These funds were subsequently transferred to a third party that was "apparently in connection with the purchase and sale of crypto assets," the SEC added.

In the complaint, the SEC claimed that BAM Trading and Bam Management made false representations to investors about surveillance controls that were put in place to prevent manipulative trading on Binance.US. As a result of this claim, the two firms allegedly raised approximately $200 million from private investors and attracted billions of dollars in trading volumes from both retail and institutional clients.

However, contrary to their claims these 'supposed controls were virtually non-existent'. As a result, Sigma Chain engaged in wash trading that artificially inflated the trading volume of crypto asset securities on Binance.US, the SEC alleged.

Still on the allegations, the regulator accused Binance and Zhao of implementing a 'multi-step plan' to secretly evade US laws, starting in or around 2018. The SEC said this action "put the safety of billions of dollars of US investor capital at risk and at Binance's and Zhao's mercy."

“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 the SEC's Chair, Gary Gensler.

'Zero Justification' for Lawsuit, Binance Reacts

Meanwhile, reacting to the lawsuit on Monday, Binance in a blog post said that the SEC through its latest action had abandoned efforts to reach a negotiated settlement to resolve the investigations. It accused the regulator of rushing 'to claim jurisdictional ground from other regulators' rather than seek to serve the interest of investors.

Our response to the SEC's complaint.https://t.co/mgXxGTKr67

Binance said allegations concerning users' assets on its US trading platform are at risk and "simply wrong," adding that: "there is zero justification for the [SEC] Staff's action in light of ample time the Staff had to conduct their investigation."

"All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary," Binance reported on its website.

Moreover, the exchange noted that it is "prepared to fight ['the SEC's latest overreach'] to the full extent of the law."

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