May 22, 2024
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SEC Files Lawsuit Against Binance, Alleging Unregistered Sales and Misconduct

The District Court for the District of Columbia received a lawsuit filed by the United States Securities and Exchange Commission (SEC) against Binance, its US platform, and CEO Changpeng Zhao (CZ) on Monday, June 5. The SEC pressed 13 charges against Binance, which include unregistered offers and sales of the Binance Coin (BNB) and Binance USD (BUSD) tokens, as well as allegations related to the Simple Earn and BNB Vault products and the staking program. Additionally, the SEC claims that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. The suit also asserts that Binance.US, along with its legal entity BAM Trading, failed to register as an exchange, broker, and clearing agency. CZ, identified as a “controlling person,” was sued as well.

According to the suit, “Defendants have enriched themselves by billions of US dollars while placing investors’ assets at significant risk. […] Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes.” The suit further alleges that “Defendants BAM Trading and BAM Management defrauded equity, retail, and institutional investors about purported surveillance and controls over manipulative trading on the Binance.US Platform, which were in fact virtually non-existent.”

The charges include claims that Binance neglected to restrict US investors from using Binance.com and that Binance.US participated in wash trading through its undisclosed “market making” trading firm Sigma Chain, which is owned by CZ. The suit also asserts that Binance and Binance.US commingled funds in an account controlled by Merit Peak Limited, associated with CZ. These charges align with complaints previously filed by the Commodity Futures Trading Commission on March 27, which CZ refuted in a detailed blog post.

SEC Chair Gary Gensler expressed in a statement, “As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied.” The SEC is seeking a permanent injunction against Binance and CZ to prevent further activities, as well as disgorgement of ill-gotten gains with interest and financial penalties.

The suit claims that several tokens traded on the Binance exchange are securities, including BNB, BUSD, Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and COTI.

Both Binance and Binance.US responded separately to the lawsuit. Binance.US, in a tweet, characterized the SEC’s claims as “the latest example of regulation by enforcement” and stated that the suit is baseless, vowing to vigorously defend themselves. In a blog post on Binance.com, the company acknowledged active cooperation with the SEC’s investigations, asserting that the allegations should not lead to an enforcement action, especially on an emergency basis. Binance.com further stated, “Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong,” and criticized the SEC’s actions as an attempt to claim jurisdictional ground from other regulators, with investors not being the SEC’s priority.

Allegations against Binance are not new, as reports indicate that the SEC investigation into Binance commenced in June 2022. Binance has dismissed reports of fund mismanagement as a “conspiracy theory.”

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