SEC Sues Binance and Its CEO, Changpeng Zhao

The SEC on Monday sued Binance and its CEO, Changpeng Zhao, for allegedly mishandling funds and lying to regulators.

On Monday, the US Securities and Exchange Commission (SEC) accused cryptocurrency exchange Binance of allegedly mishandling customer funds and lying to investors and regulators about its operations.

The SEC also sued Binance founder Changpeng Zhao, alleging that he and the exchange failed to restrict US customers from its platform and mislead investors about its market surveillance controls. The regulator further accused Binance of operating as an unregistered securities exchange, Reuters reports.

In a press release, the SEC said:

The Securities and Exchange Commission today charged Binance Holdings Ltd. (“Binance”), which operates the largest crypto asset trading platform in the world, Binance.com; U.S.-based affiliate, BAM Trading Services Inc. (“BAM Trading”), which, together with Binance, operates the crypto asset trading platform, Binance.US; and their founder, Changpeng Zhao, with a variety of securities law violations.

In a case filed in federal court in Washington, DC, the SEC said the exchange has been mixing “billions of dollars” in customer funds and secretly sent them to Merit Peak Limited, a separate company controlled by Zhao. The SEC’s complaint details that Binance and Zhao controlled customers’ assets, allowing them to mix and divert funds and that Binance created separate US entities “as part of an elaborate scheme to evade US federal securities laws.”

Gary Gensler, Chair of the SEC, said:

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.

Adding:

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.

They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value US customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.

CZ Dismisses Charges

Zhao dismissed the charges on Twitter by saying “4,” a popular reference in the Binance community that urges users to ignore FUD (fear, uncertainty, and doubt).

4.

Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits.

We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.

🙏

— CZ 🔶 Binance (@cz_binance) June 5, 2023

Zhao assured the community that Binance’s systems are stable, with deposits and withdrawals operating per usual. 

Binance published its response to the suit shortly after the news broke. The exchange said:

We are disappointed that the U.S. Securities and Exchange Commission chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief.  From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. 

Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.  But despite our efforts, with its complaint today the SEC abandoned that process and instead chose to act unilaterally and litigate.  We are disheartened by that choice. 

Crack Down on Binance Continues

The newest suit adds to the list of regulatory action taken against the exchange by US regulators. In March, the Commodity Futures Trading Commission (CFTC) sued Binance and Zhao, accusing the exchange of trading on its own platform and alleging that the founder partook in insider trading.  

CZ outright denied the allegations stating that Binance does not and will never trade for profit or “manipulate” the market. Despite CZ’s denial, users withdrew around $400 million in 24 hours from the exchange.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.