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The US Securities and Exchange Commission (SEC) has filed an extensive lawsuit against Binance. On Monday, June 5, the SEC filed the lawsuit in federal court, outlining 13 different allegations. Essentially, the SEC accuses Binance of mishandling customer funds and providing false information to regulators and investors about its business. So, let’s take a closer look.
The SEC has filed an in-depth lawsuit against Binance, the world’s largest cryptocurrency exchange. SEC Chairman Gary Gensler stated that through thirteen charges, they allege Zhao and Binance entities engaged in deceptive practices, conflicts of interest, lack of transparency and deliberate attempts to evade the law. In addition, the allegations include misleading investors about risk control, manipulating trading volumes, concealing platform operators, manipulative trading by affiliated market makers, and concealing custody of investor funds and crypto-assets.
The SEC has accused Binance of commingling customer funds, meaning mixing them together, worth billions of dollars. They allege that these funds were covertly transferred to another company called Merit Peak Limited. Apparently, Binance’s founder, Changpeng Zhao, controls this company.
Furthermore, the accusations against Binance involve misleading investors about the effectiveness of its systems in detecting and preventing manipulative trading. The SEC also alleges that Binance did not take adequate measures to prevent US investors from accessing its unregulated exchange.
In addition, the legal complaint identifies several individual tokens that the SEC considers securities. These tokens include BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, ALGO, COTI, SAND (The Sandbox), MANA (Decentraland) and AXS (Axie Infinity).
Now let’s take a look at how Binance responded to the allegations. The company has released a blog post. Here they stated: “We are disappointed that the US Securities and Exchange Commission chose to file a complaint today against Binance.”
They continued: “Today’s action is another in a series of examples where, as with other crypto projects facing similar lawsuits, the Commission has decided to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach required of this dynamism and complex technology.” In addition, Binance founder Zhao tweeted the company’s official response to the allegations, saying the SEC is trying to unilaterally shape the crypto market.
The recent lawsuit against Binance is part of the US regulators’ ongoing efforts to bring regulation to the cryptocurrency trading industry. So far, this has lacked comprehensive oversight. Of course, the regulators’ goal is to ensure that major players in the industry follow US laws. However, there is debate and different opinions about whether the approach to enforcing regulations through litigation is effective and fair. This is included within the SEC.
So, what does this mean for Binance? Ultimately, Binance is facing increasing legal pressure. To maintain its reputation and address SEC concerns, Binance has hired new compliance officers. This includes a former federal prosecutor leading the compliance effort.