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The SEC’s lawsuit against Binance makes a number of allegations against the world’s largest crypto exchange as well as the other defendants – which include CEO Changpeng Zhao.
In the lawsuit, the SEC cites internal communications, including emails and various quotes from Binance employees.
The SEC is claiming that Binance, alongside BAM Trading and CZ, violated securities laws.
Binance, however, disputes the claims calling them both “disheartening” and “disappointing.”
In a common US regulatory practice, the SEC in its suit refers to employees of Binance and its affiliates by their job titles — without identifying them.
Here’s what the SEC is claiming that Binance employees have said in relation to its claims.
Changpeng Zhao
Zhao is named throughout the suit — both in quotes, and because he’s a defendant.
He allegedly pushed Binance to “encourage customers to circumvent Binance’s geographic blocking of U.S.-based IP addresses by using a VPN service to conceal their U.S. location.” And the chief communications officer drafted a “VIP handling document” which “instructed Binance employees to make sure the U.S. customers opened new accounts ‘with no US documents allowed’ and to inform the customer ‘to keep this confidential.’”
“We don’t want to lose all the VIPs which actually contribute to quite a large number of volume. So ideally we would help them facilitate registering companies or moving the trading volume offshore in some way—in a way that we can accept without them being labeled completely U.S. to us,” Zhao allegedly said in June 2019 during a “weekly meeting of senior Binance officials.”
In a meeting a few days later, Zhao said, “We do need to let users know that they can change their KYC [know-your-customer information] on Binance.com and continue to use it. But the message, the message needs to be finessed very carefully because whatever we send will be public. We cannot be held accountable for it.”
“A few days later, Binance’s Chief Marketing Officer reported that the team had reached out to the top 22 U.S. VIP customers and that 19 had “already agreed to change KYC, or change their IP,” the lawsuit said in the sole mention of the CMO.
Binance’s CCO
One of the most quoted people in the 136-page lawsuit is a Binance CCO.
The quote that will probably become infamous is one from December 2018: “We are operating as a fking unlicensed securities exchange in the USA bro.”
But they also allegedly said that “we do not want [Binance].com to be regulated ever.” Going on to say, per a screenshot included in the suit, that Binance “created local entities to be registered with the regulators, and ringfence accordingly. So BAM, BAS, etc. These are entities that are regulated/licensed.”
In a communication from 2020, a screenshot shows a Binance CCO allegedly saying that “on the surface, we cannot be seen to have US users, but in reality, we should get them through other creative means.”
In relation to the alleged VIP handling, the CCO is quoted as saying, “[W]e ask them to onboard with US, and then if their volume is really very big … we will push hard on .com side to accept it on an exceptional basis … we always have a way for whales … either we do it, or [a competitor crypto trading platform] does it.”
The CCO allegedly went on to add, “CZ will definitely agree to this lol … I have been briefed by top management to always find a way to support biz.”
Binance CFO
A Binance chief financial officer allegedly told Zhao that the ‘first goal’ was “to protect [Binance].com from U.S. regulatory engagement.” To do so, he noted that Binance will need to launch a new US crypto asset platform, and that “the main goal for that one is to limit the loss of users from the U.S.”
The lawsuit also includes 2019 conversations between the CCO and the CFO over listing BNB on the Binance.US platform.
“In an internal chat in September 2019, the Binance CFO and the Binance CCO agreed that “CZ [wa]s willing to take the legal risk in listing BNB, if [they could] find a way to quantify it,” the lawsuit claims.
“Cutting US from .com already [cost] him an arm/leg, he’s not gonna hold back on getting that rev[enue] back somehow,” the CCO is quoted as saying in response.
In the event of either a Wells notice or subpoena — which both the CFO and the CCO allegedly acknowledged were possible following the SEC’s enforcement action against Kik Interactive — reportedly said that they would “start prepping everything” which included a “war chest.”