SEC Sues Binance and CEO Changpeng Zhao Over Securities Violations
June 5, 2023
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, one of the world’s largest cryptocurrency exchanges, and its CEO Changpeng Zhao (CZ), accusing them of violating federal securities laws. The lawsuit, filed on Monday, alleges that Binance, Binance.US, and CZ offered unregistered securities to the public, specifically referring to the BNB token and the Binance-linked BUSD stablecoin.
According to the SEC, Binance’s staking service also violated securities laws. The allegations include charges against BAM Trading, the operating company for Binance.US, as well as Binance itself. The SEC claims that both entities failed to register as a clearing agency, a broker, and an exchange, thereby violating regulatory requirements.
The SEC further alleges that Binance permitted the commingling of customer funds and that CZ secretly controlled Binance.US. Additionally, the lawsuit claims that a CZ-owned and operated entity artificially inflated Binance.US’s trading volume. These allegations suggest a pattern of deceptive practices within the organization.
A significant aspect of the lawsuit revolves around Binance’s alleged allowance of U.S. persons to trade on its platform despite explicitly stating otherwise. The SEC claims that Binance deliberately concealed its efforts to ensure that high-value U.S. customers could continue trading on the platform. The lawsuit cites an announcement made by Binance in 2019, claiming that controls were being implemented to block U.S. customers from accessing the Binance.com Platform. However, the SEC alleges that Binance, under CZ’s direction, assisted certain high-value U.S. customers in circumventing those controls covertly.
The SEC’s complaint also identifies several other tokens, including SOL, ADA, MATIC, COTI, ALGO, FIL, ATOM, AXS, Axie Infinity, and MANA, as securities. This implies that Binance may have violated securities laws by allowing trading of these tokens without appropriate registration or compliance measures.
In a stunning revelation, the lawsuit highlights a statement made by Binance’s Chief Compliance Officer in 2018, where they allegedly acknowledged that the exchange was operating as an unlicensed securities exchange in the United States.
The SEC’s legal action against Binance and CZ reflects the growing scrutiny that regulators are placing on the cryptocurrency industry. As the popularity of digital assets continues to rise, regulatory bodies worldwide are intensifying efforts to enforce compliance and protect investors
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