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The initial coin offering that served as the cornerstone of the launch of the Binance cryptocurrency exchange in 2017 is getting a fresh look from federal regulators.
According to anonymous sources cited in a Bloomberg report today by Tom Schoenberg and colleagues, the Securities and Exchange Commission (SEC) is revisiting the origins of the exchange's Binance Coin (BNB) for potential violations of securities regulations. Since its launch in 2017, Binance has become far and away the largest cryptocurrency exchange on the market by trading volume.
News of the federal regulatory probe comes just as Reuters released the results of an unrelated investigation in which the news service claims that at least $2.35 billion in illicit funds have been laundered through Binance between 2017 and 2021.
It is unclear what prompted this latest look back by the SEC, but BNB is currently the fifth-largest cryptocurrency, according to CoinMarketCap, logging a total market cap of $48 billion and 24-hour trading volume of $1.4 billion as of this writing.
At the heart of the case is the SEC's regulatory authority over investment contracts, and whether digital currencies qualify as such—particularly if they are sold to investors as a way to fund a company with the promise of profiting from the company’s efforts.
BNB was created in July 2017 as an ERC-20 token on the Ethereum blockchain before shifting to a separate Binance Chain. The initial coin offering of 100 million tokens at 15 cents per token raised $15 million. Now the native currency on the Binance crypto exchange, BNB can be traded directly, used to make purchases and payments, and pay a discounted rate on Binance transaction fees.
Bloomberg asserts that Binance "faces multiple investigations in Washington," which in turn are part of dozens of enforcement actions over ICOs.
In a statement to the financial news outlet, Binance said, “It would not be appropriate for us to comment on our ongoing conversations with regulators, which include education, assistance, and voluntary responses to information requests,” adding, “We will continue to meet all requirements set by regulators.”
Those regulators may also be looking at Binance US, an affiliate company founded in 2019, and whether it's sufficiently separated from its global parent.
Bloomberg quoted company officials in clarifying that “Binance.US is a separate US-focused trading platform that services US users by offering products and services that are compliant with US federal and state regulations," and a separate statement from Binance US affirming its commitment to compliance.
In March, Binance was hit with a $5 million class-action lawsuit in which users claimed the exchange sold them 79 different crypto assets (including Dogecoin, Solana, and Cardano) that should have been handled as licensed securities.