The SEC charges Binance with 13 counts of securities law violations

In a major development, the US Securities and Exchange Commission (SEC) has filed a sweeping lawsuit against Binance, the world’s largest cryptocurrency exchange. The lawsuit, which details 13 separate charges, was filed in federal court on Monday, June 5, and accuses Binance of mismanaging customer funds and deceiving regulators and investors about its operations.

“Through thirteen indictments, 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,” SEC Chairman Gary Gensler said.

“As alleged, Zhao and Binance misled investors about their risk controls and corrupt trading volumes, while actively concealing who ran the platform, the manipulative trading of the associated market maker, and even where and with whom investor funds and cryptoassets were kept.”

The trial

According to the SEC, Binance has been accused of commingling billions of dollars in customer funds and surreptitiously transferring them to a separate company, Merit Peak Limited. This company is reportedly under the control of Binance’s founder, Changpeng Zhaowhich is widely known in the cryptocurrency world as “CZ”

The charges against Binance extend to allegations of misleading investors about the robustness of its systems designed to identify and curb manipulative trading. The SEC further alleges that Binance failed to implement adequate measures to prevent US investors from accessing its unregulated exchange.

The legal complaint also states that the SEC has identified several individual tokens that it believes are securities, which includes BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, ALGO, COTI, SAND (The Sandbox), MANA (Decentraland), AXS (Axie Infinity).

Binance responds

Zhao took to Twitter to address the allegations, indicating that he had yet to receive the complaint and that the company would respond when it does. Initially, their team said they were “vigilant to ensure the systems are stable, including withdrawals and deposits.”

4.

Our team is ready and ensures that the systems are stable, including withdrawals and deposits.

We will provide a response when we see the complaint. Haven’t seen it yet. The media gets the information before we do.

🙏

— CZ 🔶 Binance (@cz_binance) 5 June 2023

Zhao finally tweeted out the company’s official response to the allegations, claiming that the SEC aims to “unilaterally define” the shape of the crypto market.

“We are disappointed that the US Securities and Exchange Commission chose to file a complaint today against Binance,” the company explained in a blog post addressing the issue. “From the beginning, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns.”

“Unfortunately, the SEC’s refusal to engage productively with us is just another example of the commission’s misguided and willful refusal to provide much-needed clarity and guidance to the digital asset industry,” the post 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 by this dynamic and complex technology.”

What this means for Binance

This lawsuit against Binance is the latest in a series of actions by US regulators seemingly aimed at bringing order to a largely unregulated cryptocurrency trading space. While the regulators’ ostensible goal is to ensure that major players in the industry comply with US laws, there has been much debate and dissent, even within the SEC’s own leadership, about whether or not the organization’s “regulation by enforcement” policy is effective. or fair.

Binance, much like its competitor Coinbase, has struggled with increasing legal pressure in the face of this approach. The Department of Justice is currently investigating the former for potential money laundering violations. In addition, Binance’s external auditing firm, Mazars, severed ties with the company following its decision to end business with cryptocurrency companies last year. Binance’s dominance in the cryptocurrency market has also waned, although it remains the number one exchange by volume in the market.

In an effort to maintain its reputation and avoid complications with the SEC, Binance has brought on several new compliance officials over the past year, including a former federal prosecutor who now heads its compliance operation.

In the SEC statement announcing the charges, Gurbir S. Grewal, director of the SEC’s Division of Enforcement, stated, “We allege that Zhao and the Binance entities not only knew the traffic rules, but also deliberately chose to evade them, putting their customers and investors at risk .”

The action by the SEC comes just over a month after the Commodities Futures Trading Commission (CFTC) launched its own civil enforcement action against Binance and Zhao, with the CFTC seeking a lifetime ban on Zhao from conducting business within its jurisdiction. It also aims to permanently expel Binance from the US.

Editor’s note: This article was written by an nft employee in collaboration with OpenAI’s GPT-4.