In a recent interview with Bloomberg, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), shed light on his concerns about Binance as a custodian for crypto assets. Gensler added that Binance’s handling of customer assets drew parallels with FTX’s operations, an exchange that has since failed. The SEC chairman emphasized that financial advisors should be cautious when considering the platform as a trustworthy entity for their clients’ cryptocurrency holdings.
The SEC filed a lawsuit against Binance consisting of 136 pages, highlighting accusations of securities law violations, market manipulation, and illegal service provision to US-based clients through its international platform. Among several complaints, it alleged that Binance had mismanaged and commingled user assets, which regulated entities with oversight could not do.
According to the SEC filing, a sister organization controlled by Binance CEO Changpeng Zhao (CZ) called “Sigma Chain” engaged in wash trading, artificially inflating the trading volume of crypto asset securities on the Binance.US platform. Furthermore, another sister organization – Merit Peaked Limited – mixed funds from both Binance and Binance.US amounting to billions of dollars. Gensler stressed that the international and US entities, allegedly controlled by CZ, should have operated separately. He likened these relationships to those seen with FTX and Alameda Research – two companies owned by Sam Bankman-Fried.
Gensler explained that such practices could put customers at risk since the platform operators might focus on maximizing their wealth and that of their investors through affiliated organizations, trading against customers, or even dealing against their clientele’s interests.
For crypto companies to operate safely and transparently, Gensler highlighted the need for compliance with public policy regulations regarding matters such as conflicts of interest, segregating customer funds, and fighting against fraud and manipulation. A failure to do so might result in the crypto ecosystem collapsing like a house of cards.
Coinbase also faced a similar 101-page lawsuit from the SEC, with accusations of breaching many of the same laws as Binance. The filing focused on the listing of multiple unregistered “crypto asset securities” while never having registered as a securities exchange.
In a separate interview, Gensler questioned the value of digital currencies in the United States, implying that it might not require more of them. The SEC chairman stressed the need for comprehensive and transparent disclosures to protect investors and promote market integrity.