In a recent development, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against leading cryptocurrency exchange Binance and its founder and CEO, Changpeng “CZ” Zhao. The SEC alleges that Binance, Binance.US, and CZ violated federal securities laws by offering unregistered securities to the public. The lawsuit also accuses Binance of engaging in other illegal activities, including the violation of securities law through its staking service and the commingling of customer funds.
Unregistered Securities and Violations:
According to the SEC, Binance, Binance.US, and CZ offered unregistered securities in the form of the BNB token and the Binance-linked BUSD stablecoin. The lawsuit further claims that Binance’s staking service violated securities law. The SEC has also leveled charges against BAM Trading, the operator of Binance.US, and Binance itself for failing to register as a clearing agency, broker, and exchange. Additionally, the SEC alleges that Binance allowed for the commingling of customer funds and that CZ secretly controlled Binance.US while a CZ-owned entity inflated Binance.US’s trading volume.
Misleading Statements and Circumvention of Regulations:
The SEC lawsuit repeatedly accuses Binance of allowing U.S. persons to trade on its platform, despite claiming otherwise. The suit alleges that Binance and CZ deliberately misled the public by publicly stating that the Binance.com platform did not serve U.S. persons while secretly assisting high-value U.S. customers in circumventing controls. This action was taken to avoid being held accountable for violating U.S. regulations.
Tokens Deemed Securities:
The SEC’s lawsuit asserts that several tokens, including native coins for various blockchain networks like Solana, Cardano, Polygon, Coti, and Algorand, as well as tokens like Filecoin, Cosmos, Sandbox, Axie Infinity, and Decentraland, are securities.
Commingling and Misuse of Funds:
The SEC claims that Binance’s poor financial controls resulted in the diversion of customer funds for potential personal uses. It alleges that entities linked to CZ, such as Merit Peak Limited and Sigma Chain, had access to substantial amounts of customer funds. The suit also reveals that CZ personally received $62.5 million from a Binance bank account during a specific period. Sigma Chain, controlled by CZ, even purchased a yacht worth $11 million using an account connected to customer funds.
Lack of Regulatory Oversight:
The SEC highlights Binance’s lack of regulatory oversight, allowing defendants to freely transfer and divert investors’ crypto and fiat assets, commingling them in ways that registered brokers, dealers, exchanges, and clearing agencies would not be permitted to do.
Control Issues and Internal Struggles:
The SEC lawsuit unveils internal struggles within Binance’s U.S. operations, where CZ and top Binance officials exerted control despite assurances of independence. The U.S. operations faced restrictions that required obtaining approval from the global company for basic functions, creating a perceived lack of autonomy.
The SEC’s lawsuit against Binance and CEO CZ alleges violations of federal securities laws, including the offering of unregistered securities and various other illegal activities. The lawsuit sheds light on alleged misleading statements, the commingling and diversion of customer funds, and control issues within Binance’s U.S. operations. As the legal proceedings unfold, the cryptocurrency industry eagerly awaits further developments in this high-profile case.