U.S. regulators on Monday accused Binance and its CEO Zhao Changpeng of operating a “web of deception” to put further pressure on the world’s largest cryptocurrency exchange, pushing bitcoin to nearly three He filed a lawsuit on suspicion of dropping the stock to a monthly low.
A Securities and Exchange Commission (SEC) complaint filed in federal court in Washington, D.C., lists 13 charges against Binance, Zhao, and their allegedly independent U.S. exchange operators.
The SEC alleges that Binance artificially inflated trading volumes, misappropriated customer funds, failed to restrict U.S. customers’ use of the platform, and misled investors about market surveillance regulations.
The SEC also said that Binance and its billionaire founder, Chao, one of the crypto industry’s most high-profile tycoons, would secretly manage client assets and invest investors’ money “as much as they wanted.” He claimed that it allowed them to be mixed and misappropriated.
The SEC also alleges that Binance set up a separate legal entity in the United States “as part of an elaborate plan to circumvent U.S. federal securities laws,” citing a number of practices originally reported by Binance. Reuters In a series of surveys on exchanges published this year and 2022.
Almost three years ago until June 2022, Sigma Chain, a trading company owned and managed by Mr. Zhao, conducted so-called wash trading, artificially inflating the trading volume of cryptocurrency securities on the Binance.US platform. The SEC also argued that
“We allege that the Zhao and Binance corporate entities engaged in widespread deception, conflicts of interest, lack of disclosure, and deliberate circumvention,” SEC Chairman Gary Gensler said in a statement.
“We will vigorously defend our platform,” Binance said in a blog post, adding, “Because Binance is not a U.S. exchange, the SEC’s scope for action is limited.”
“The claims that user assets on the Binance.US platform have ever been compromised are completely false,” the blog post said.
Binance US, which is ultimately controlled by Mr. Zhao, said in a tweet that the lawsuit was “unjustified by facts, law, or the Commission’s own precedent.”
Bitcoin, the world’s largest cryptocurrency, plunged as much as 6% on the news, hitting its lowest level in almost three months. Binance’s own BNB, the world’s fourth-largest cryptocurrency by market size, is down more than 5%.
legal issues
The SEC accusations are the latest in a string of legal troubles against Binance, which was also accused in March of operating an “illegal” exchange and a “fake” compliance program that regulators allege. It has also been sued by the Commodity Futures Trading Commission (CFTC). . Mr. Zhao called these “incomplete recitation of facts.”
Binance is also under investigation by the Justice Department for alleged money laundering and sanctions violations, according to people familiar with the investigation.
Market players said the SEC allegation could hurt Binance, and the lawsuit is likely to reverberate in the crypto industry. Binance dominates cryptocurrency trading, with up to 70% of the market processing about $65 billion worth of trades a day last year.
“I think there is a big risk that this could have a huge impact on Binance,” said Ed Moya, senior market analyst at Oanda.
Binance’s holding company was founded in Shanghai in 2017 by CEO Chao, a Canadian citizen who was born in China and raised to 12, and is based in the Cayman Islands. However, the exchange declined to disclose the location of the main Binance.com exchange, saying it does not have a headquarters.
The SEC announced that billions of dollars in Binance customer funds were scrambled into Zhao-controlled corporate bank accounts and then transferred to Merit Peak, a third-party company also controlled by Zhao.
Reuters last month reported that Binance had violated U.S. financial rules requiring the segregation of customer funds and mixed customer funds with company earnings in U.S. bank accounts belonging to Merit Peak.
In response to the article, Binance denied commingling customer deposits with company funds, stating that users who sent money to their accounts were not making deposits, but purchasing Binance’s signature dollar-backed crypto tokens.
Reuters Also on Monday, it was reported that a senior Binance executive was the primary operator of five bank accounts belonging to the US affiliates of the giant cryptocurrency exchange, including accounts that held US client funds. .
The SEC said the executive also had “signing authority over BAM Trading’s U.S. dollar accounts” until at least December 2020.
