The Securities and Exchange Commission (SEC) has accused the trading platform Binance and its founder Changpeng Zhao of disregarding investor protection rules in order to continue operating in the United States. Both the company and Mr. Zhao are alleged to have mishandled customer funds. Binance has stated that it will vigorously defend its platform. This SEC complaint marks the second lawsuit filed against the company this year and follows the US government’s commitment to increased regulation of the cryptocurrency industry.
Binance, founded in 2017 and active in over 100 countries, has denied that customer funds were ever at risk. The company stated that while it takes the SEC’s allegations seriously, they should not be the basis for an enforcement action. Binance claims to have been in discussions with the regulator and argues that the legal action reflects regulators’ failure to provide much-needed clarity and guidance to the digital asset industry.
Binance, registered in the Cayman Islands, is renowned as the world’s largest platform for trading cryptocurrencies and digital assets. The SEC’s complaint includes 13 charges against the company and Mr. Zhao, accusing them of unlawfully soliciting investors and customers, misrepresenting trading activity on the platform, and misleading the public about its oversight. The complaint further alleges that customer funds were diverted to companies controlled by Mr. Zhao. The SEC Chair, Gary Gensler, described the actions of Binance and Mr. Zhao as an extensive web of deception, conflicts of interest, lack of disclosure, and deliberate evasion of the law.
This filing by the SEC comes amid increased efforts by US authorities to combat fraud and other issues in the cryptocurrency industry, particularly following the collapse of Binance’s rival, FTX, last year. The Commodity Futures Trading Commission also filed a lawsuit against Binance in March, accusing it of operating illegally in the US. The Department of Justice is also investigating the company.
The SEC’s development, seeking to ban Binance in the US, caused the price of Bitcoin to drop over 5%. The SEC’s complaint alleges that Binance and Mr. Zhao had unrestricted control over billions of dollars of crypto assets from the US, which they used improperly to transfer tens of millions of dollars to accounts at other companies controlled by Mr. Zhao. Binance and Mr. Zhao’s actions are seen as a blatant disregard for federal securities laws and the protections they provide to investors and the market. The SEC’s lawsuit also reveals internal discussions within Binance about evading regulators, indicating the company’s substantial revenue earned from US customers.
