In a significant development for the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has initiated legal action against Binance, the world’s largest cryptocurrency exchange, and its CEO and founder Changpeng Zhao (CZ). The SEC alleges that Binance and Zhao violated securities laws, misled investors, and engaged in deceptive practices.
The SEC filed the complaint on June 5, 2023, in federal court in Washington, D.C., asserting that Binance and Zhao operated unregistered securities exchanges, broker-dealers, and clearing agencies. They are accused of offering and selling unregistered securities, including Binance’s own crypto assets. Additionally, the SEC claims that despite representing that U.S. customers were restricted from accessing Binance’s global platform, Binance.com, the company failed to enforce this restriction effectively.
The complaint also alleges that Binance and Zhao secretly controlled and manipulated the operations of Binance’s U.S. affiliate, BAM Trading, which operates Binance.US, a crypto trading platform catering to U.S. investors. The SEC asserts that Binance and Zhao exercised control over customers’ assets, allowing commingling and diversion of customer funds to third parties owned by Zhao, such as Sigma Chain and Merit Peak.
Furthermore, the SEC alleges that Binance and Zhao provided false information to investors regarding their market surveillance controls and oversight on the Binance.US platform. Simultaneously, they engaged in fraudulent and manipulative trading practices to artificially inflate the platform’s trading volume.
The SEC’s lawsuit seeks permanent injunctions, disgorgement of ill-gotten gains, civil penalties, and bars against Zhao from serving as an officer or director of any public company.
This lawsuit is the latest in a series of legal challenges for Binance, as it is also under investigation by the Justice Department and the Commodity Futures Trading Commission for suspected money laundering and sanctions violations. Additionally, regulatory scrutiny and actions have been taken against Binance by authorities in various countries, including the UK, Germany, Japan, Singapore, and Canada.
Binance has yet to issue a formal response to the SEC’s charges. In a tweet, Zhao stated that the company would review the complaint and cooperate with the authorities. He further reassured Binance users that their funds are secure and advised against panic.
