SEC Sues Binance, CEO Zhao, Alleges “Web of Deception”
The US Securities and Exchange Commission (SEC) has sued Binance, the world’s largest cryptocurrency exchange, and its CEO and founder, Changpeng Zhao, for allegedly failing to restrict US customers from its platform and misleading investors about its market surveillance controls as well as for operating an unregistered securities exchange.
Binance, Binance.US and Zhao offered unregistered securities to the public in the form of the BNB token and Binance-linked BUSD stablecoin, said the suit, which also alleges that Binance’s staking service violated securities law.
“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,” SEC Chair Gary Gensler said. “The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
The SEC also alleged that Binance allowed the commingling of customer funds, that Zhao was “secretly” controlling Binance.US and a Zhao-owned and operated entity was inflating Binance.US’s trading volume.
The suit also alleged multiple times that Binance allowed US persons (meaning US citizens or people living in the US) to trade on its platform, despite saying it was not.
“When the Binance.US Platform launched in 2019, Binance announced that it was implementing controls to block US customers from the Binance.com Platform. In reality, Binance did the opposite,” the suit said.
In addition, because of Binance’s lax financial controls, the money that belonged to its customers was used for other purposes, potentially for personal use. According to the SEC’s allegations, Merit Peak Limited, a market-maker that was formerly associated with Zhao, had access to “billions of US dollars of customer funds,” while Sigma Chain, another firm controlled by Zhao, received almost $200 million from BAM Trading and a BAM Trading custody account.
The lawsuit comes as the US has pledged to use its laws to more aggressively oversee the crypto industry.
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