The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance on June 5, alleging that the exchange was involved in the sale of unregistered securities. The 136-page complaint accuses Binance and its founder, Changpeng “CZ” Zhao, of participating in a complex conspiracy that involved fraud, conflicts of interest, a lack of disclosure, and willful disregard for the law.
According to the SEC, Changpeng Zhao has been operating Binance.com and Binance.US as exchanges, brokers, dealers, and clearing agencies since at least July 2017. The complaint claims that these companies have earned at least $11.6 billion through various methods, including transaction fees collected from American clients. The SEC alleges that Binance.com should have registered as a clearing agency, broker-dealer, and exchange, while Binance.US and BAM Trading should have registered as clearing agencies and exchanges, respectively.
The SEC also accuses Binance of creating weak controls while secretly disobeying them to keep its highly valuable U.S. customers. Despite publicly claiming that Binance prohibited U.S. customers from trading, the exchange allegedly permitted them to continue using the platform, showing a deliberate disregard for U.S. securities laws. This controversial practice highlights the central issue of the case: whether or not Binance has violated securities law by allowing U.S. customers to use its platform.
Wash trading on the Binance.US platform is also a significant concern in the SEC’s lawsuit. The SEC alleges that BAM Trading and BAM Management, who are connected to Binance.US, misled clients and equity investors about the effectiveness of market oversight and measures to identify and stop manipulative trading on the platform. This artificial inflation of trading volumes provides a false impression of market interest and raises questions about the reliability of trading volume data and transparency of Binance.US’s market activities.
Zhao and Binance are also charged with diverting customer assets at their discretion, such as sending money to the Switzerland-based Sigma Chain that is under Zhao’s control. The SEC claims that Merit Peak and Sigma Chain were used to transfer tens of billions of dollars between Binance, Binance.US, and other connected entities, raising questions about how Binance and its affiliated organizations handle customer assets.
The full extent of the alleged misappropriation of funds and diversion of customer assets will be further investigated and scrutinized as the legal proceedings progress. In the meantime, crypto enthusiasts are left to wonder about the potential implications of the SEC’s lawsuit on the future of Binance and the broader crypto market. On one hand, the case could lead to improved regulatory compliance and transparency within the industry. On the other hand, it could potentially push some market participants to seek out less-regulated alternatives, further fragmenting the global crypto landscape.
Source: Cointelegraph
