The US Securities and Exchange Commission (SEC) has accused Binance, its subsidiary, BAM Trading, and the CEO of Binance, Changpeng ‘CZ’ Zhao, of violating securities laws. The impact of these allegations on the crypto industry could be significant, causing the most significant cryptocurrency, BTC, to experience a notable dip.
Among the allegations, the SEC claims that BNB, BUSD, and the staking investment product on Binance.US count as unregistered securities. The commission asserts that Binance and BAM Trading have engaged in unregistered offers and sales of these crypto asset securities, including Binance’s BNB Vault and Simple Earn and the staking investment product on the Binance.US platform.
Additionally, the SEC suggests that Binance has commingled customer funds, thereby evading US regulatory oversight and putting the safety of investor capital at risk. The primary example provided is the commingling of customer funds from both Binance platforms in an account owned by a Zhao-controlled entity, Merit Peak Limited. These funds were subsequently transferred to a third party for the purchase and sale of crypto assets.
Furthermore, the SEC alleges that Binance has acted as an unregistered exchange alongside BAM Trading.
As for potential consequences, the SEC is looking to impose significant restraints on both Zhao and Binance’s operations in the United States. However, they seem to hold off on permanently enjoining them from potential activities in the future. The SEC does seek a permanent injunction from violations of the acts and requirements cited in the complaint.
It is worth noting that the crypto industry strongly disagrees with the SEC’s view of what constitutes securities. While the SEC often appears clear on its classification of securities, the crypto community believes that not every digital asset should be considered a security, with the exception of bitcoin. A ruling on Ripple and its XRP token within weeks could put the SEC’s argument to the test.
Besides the operational constraints, the SEC may also seek monetary penalties if the allegations are proven. They specifically request that defendants “disgorge all ill-gotten gains, with prejudgment interest thereon.” Given Binance’s profitability, this case could prove to be a lucrative venture for the SEC.
Source: Blockworks
