Binance, US platform, CEO face SEC lawsuit over alleged securities violations

The United States Securities and Exchange Commission (SEC) has initiated legal action against cryptocurrency exchange Binance, its U.S. platform, and Chief Executive Officer Changpeng Zhao, levying charges related to securities violations. The suit was filed on June 5, in the District Court for the District of Columbia.

See related article: Binance, Zhao sued by CFTC for alleged regulatory violations

Fast facts

• Binance faces 13 charges in the lawsuit, including unregistered offers and sales of the BNB and BUSD tokens, and unregistered activity related to its Simple Earn and BNB Vault products and its staking program.
• The SEC alleges that Binance did not register Binance.com as an exchange or a broker-dealer clearing agency. Binance and BAM Trading, the operator of Binance.US, allegedly failed to register the U.S. platform as an exchange, broker, and clearing agency.
• “Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk… Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes,” the SEC alleged in its lawsuit. The charges also include alleged fraudulent activity by BAM Trading and BAM Management relating to surveillance and control over manipulative trading on the Binance.US platform, claiming these were “virtually non-existent.”

• The lawsuit also claims that Binance did not restrict U.S. investors from using Binance.com. It alleges that Binance.US participated in wash trading, a form of market manipulation, through its “primary undisclosed ‘market making’ trading firm Sigma Chain,” allegedly owned by Zhao.

• The SEC is seeking a permanent enjoinment on Binance and Zhao from further activities, disgorgement of ill-gotten gains with interest, and financial penalties.

• Tokens traded on the Binance exchange, including BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, are alleged to be securities, which would require registration and regulation.

• In response, Binance and Binance.US separately refuted the suit’s claims. Binance.US referred to the allegations as the SEC’s “latest example of regulation by enforcement.” In a Binance.com blog post, the company maintained that “any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong,” and suggested the SEC’s actions appeared aimed at claiming jurisdiction from other regulators, not protecting investors.
• The SEC’s lawsuit against Binance adds to the world’s largest cryptocurrency exchange’s legal troubles. In March, the Commodity Futures Trading Commission sued Binance and Zhao for allegedly violating derivative rules.
• The cryptocurrency market fell sharply since the SEC’s lawsuit was filed, with Bitcoin falling to its lowest point since March. Bitcoin traded at US$25,521 at 3:30 a.m. in Hong Kong.
• The exchange’s BNB token also fell to its lowest mark since March and was valued at US$276.

See related article: SEC in no rush to respond to Coinbase calls for regulatory clarity