The Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency trading platform Binance and its founder Changpeng Zhao.
The US financial regulator has accused the company of misusing investor funds, operating as an unregistered exchange, and violating a slew of other US securities laws.
Binance responded that “any allegations that user assets on the Binance.US platform have ever been at risk are “simply wrong” and that it intends to defend its platform “vigorously”.
The lawsuit, filed yesterday (5 June), lists 13 charges against the crypto trading platform and its founder Zhao — including mingling and diverting “billions of dollars of investor assets” and sending them to another entity owned by Zhao.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action,” Binance said in a statement, adding it had been in discussions with the regulator “to reach a negotiated settlement”.
Binance said it cooperated with the SEC’s investigations and “worked hard to answer their questions and address their concerns”.
“Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry,” the company added.
“Web of deception”
“Through 13 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 summarised.
“The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,” he added.
Among other things, the SEC alleged that while Zhao and Binance publicly claimed that US customers were restricted from transacting on Binance.com, they secretly allowed high-value US customers to continue trading on the platform.
Further, the SEC alleged that while Zhao and Binance publicly claimed Binance.US was created as a separate, independent trading platform for US investors, they controlled the Binance.US platform’s operations behind the scenes.
Moreover, the SEC said, in one instance, Binance’s chief compliance officer messaged a colleague saying “[w]e are operating as a fking unlicensed securities exchange in the USA bro.”
Gurbir S. Grewal, director of the SEC’s division of enforcement, said: “We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximise their own profits.”
Binance responded to the SEC’s actions by asserting that the SEC’s goal was not to protect investors but rather “to claim jurisdictional ground from other regulators.”
The crypto giant concluded that due to its size and global recognition, it has become an easy target “now caught in the middle of a US regulatory tug-of-war.”
Coinbase lawsuit
Today (6 June), the SEC also filed a lawsuit against Binance rival Coinbase, alleging that the company was acting as an unregistered broker and exchange and demanding that the company be “permanently restrained and enjoined” from continuing to do so.
The SEC has alleged that at least 13 crypto assets available to Coinbase customers were considered “crypto asset securities” by the regulator.
“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer and clearinghouse functions,” said Gensler.
Coinbase has not yet issued a statement.
Photo of Changpeng Zhao by Stephen McCarthy/Web Summit