The US Securities and Exchange Commission (SEC) has reportedly filed 13 charges against the world’s largest crypto exchange Binance, its entities, and its founder Changpeng Zhao (CZ) for violating the US securities law. The charges filed in the lawsuit at the D.C. federal district court include “operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance.US platform; and the unregistered offer and sale of securities.”
The SEC took to Twitter to inform the community that Binance has been sued with a variety of charges:
Today we charged Binance Holdings Ltd. (Binance); U.S.-based affiliate, BAM Trading Services Inc., which, together with Binance, operates https://t.co/swcxioZKVP; and their founder, Changpeng Zhao, with a variety of securities law violations.https://t.co/H1wgGgR5ir pic.twitter.com/IWTb7Et86H— U.S. Securities and Exchange Commission (@SECGov) June 5, 2023
The securities regulator alleged that Zhao and Binance have control over the assets of their customers, enabling an easy diversion of customer assets, even to Sigma Chain, an entity owned and controlled by Zhao. Binance is also alleged to have diverted billions of dollars to Merit Peak, another company controlled by Binance CEO Zhao.
The SEC also shared an image to show the ownership structure under Binance CEO Zhao:
It was also revealed that Merit Peak initiated “manipulative trading” to artificially inflate the trading volume of Binance. SEC Chair Gary Gensler 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.
In a blog post, Binance asserted that the SEC complaint intends to unilaterally define the crypto market structure, to enforce and litigate. The cryptocurrency trading platform further proclaimed that the strategy used by the SEC reflects its “misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.”
Binance clarified its position in its blog post in detail,
Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong, and there is zero justification for the Staff’s action in light of the ample time the Staff has had to conduct their investigation. All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary.
The exchange believed the SEC chose regulation by enforcement instead of a “collaborative, transparent, and thoughtful policy engagement.” Binance maintained it is not a U.S. exchange, but still stands with the digital asset market participants in the U.S.