The Securities and Exchange Commission (SEC) yesterday filed 13 charges against cryptocurrency exchange Binance Holdings Ltd. and its founder, Changpeng Zhao, for alleged violations of securities law. The charges include operating unregistered exchanges, broker-dealers, and clearing agencies, and misrepresenting trading controls on the Binance.US platform.
Gary Gensler, SEC Chair, stated: "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."
The SEC's accusations center on allegations that Zhao and Binance claimed U.S. customers were restricted from transacting on Binance.com, but in reality, they were allowed to continue trading on the platform. It is further alleged that Zhao and Binance operated the Binance.US platform's operations behind the scenes, despite claiming it was a separate and independent trading platform for U.S. investors.
In a more complex charge, the SEC alleges that Zhao and Binance commingled customer assets or diverted them to an entity owned by Zhao, Sigma Chain. Allegedly, BAM Trading and BAM Management US Holdings, Inc. ("BAM Management") misled investors about non-existent trading controls over the Binance.US platform. The SEC also alleges that Sigma Chain engaged in manipulative trading that artificially inflated the platform’s trading volume.
These accusations, however, require robust proof. In the past, the SEC has faced criticism for overreach in its attempts to regulate the burgeoning crypto market. The commission will need to provide substantial evidence to back up its serious claims, particularly those concerning subverting controls and manipulation of trading volumes.
Further charges relate to violations of registration-related provisions of the federal securities laws. Binance and BAM Trading are accused of operating unregistered national securities exchanges, broker-dealers, and clearing agencies, among other things.
The SEC’s complaint, filed in the U.S. District Court for the District of Columbia, alleges that, since at least July 2017, Binance.com and Binance.US have earned at least $11.6 billion in revenue from transaction fees from U.S. customers, among other things.
The complaint also alleges Binance secretly has control over assets staked by U.S. customers in BAM’s staking program.
The SEC’s investigation into the violations with respect to the Binance.US platform was led by a team of investigators with the SEC’s Crypto Assets and Cyber Unit overseeing the process.
