On Monday, the United States Securities and Exchange Commission (SEC) filed a lawsuit against the largest crypto exchange, Binance. The lawsuit filed in the District Court for the District of Columbia targets Binance’s US subsidiary and its CEO Changpeng Zhao (CZ).
According to reports, the SEC has filed 13 charges against the exchange, including unregistered offers and sales of the stablecoins – BNB and BUSD, its services namely the Simple Earn and BNB vault products, and its staking program. Additionally, the regulator claims in its suit that Binance failed to register its online platform as an exchange or a broker-dealer clearing agency. As stated in the suit:
Defendants have enriched themselves by billions of U.S. 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.
Further, it stated that Binance’s “BAM Trading and BAM Management” defrauded equity, retail, and institutional investors about purported surveillance and controls over manipulative trading on the platform, which was in fact “virtually non-existent.” Among the other allegations in the lawsuit, the SEC claims that Binance failed to restrict American investors from using the online platform that was allegedly engaged in wash trading through its “primary undisclosed ‘market making’ trading firm Sigma Chain,” which is owned by CZ.
Additionally, the SEC claims that funds from Binance and Binance.US were commingled into an account controlled by CZ-associated Merit Peak Limited. Notably, these charges reflect the same idea put by the Commodity Futures Trading Commission on March 27. However, CZ denied those charges in a detailed blog post.
“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.”
Gary Gensler, chief of the SEC, said in the official statement
The SEC wants permanent suspension of Binance and CZ from further activities, disgorgement of ill-gotten gains with interest, and financial penalties. Notably, in its suit, the SEC again claims that tokens traded on the Binance exchange were securities, a topic that has stayed controversial for a long. The tokens listed in the suit are BNB, BUSD, Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and COTI.
Binance and Binance.US responded separately to the suit. Binance.US stated in a tweet the SEC’s claims are its “latest example of regulation by enforcement.” The suit “is baseless and we intend to defend ourselves vigorously.” In a blog post, Binance wrote:
From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. […] While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis.
However, this is not the only lawsuit Binance has to deal with. In March the Commodity Futures Trading Commission (CFTC) sued CEO Zhao and the COO, Samuel Lim alleging that the company intentionally offered unregistered crypto derivatives products in the U.S. against federal law. Additionally, the DoJ’s national security division is inquiring into whether Binance allowed Russian customers to access the exchange in violation of U.S. sanctions.
Moreover, another notable part of the lawsuit is that the SEC claims the crypto assets as securities but the CFTC’s lawsuit claimed the same assets as commodities. This highlights the urgency of regulation in the nation as the SEC continues to crack down on crypto entities.