Binance, CZ Sued by SEC; A ‘Calculated Evasion of the Law’

Key Takeaways

The SEC has sued Binance and CZ for 13 charges of buying, selling and trading unregistered securities, commingling customers’ funds and more.
This lawsuit follows in the footsteps of the CFTC suing Binance back in March, citing a violation of federal securities laws.

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The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, one of the world’s largest cryptocurrency exchanges, and its CEO, Changpeng “CZ” Zhao, according to an official announcement from the SEC.

The regulatory body is accusing Binance of 13 charges of disregarding many federal securities regulations, including allegations of operating an unauthorized stock exchange under Binance.com and Binance.US. The official case file further states: 

“This case arises from Defendants’ blatant disregard of the federal securities laws and the investor and market protections these laws provide.”

Despite publically stating that U.S. customers were barred from transacting on Binance.com, the SEC alleges that Zhao and “Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform:”

“Further, the SEC alleges that, while Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes.”

CZ took to Twitter before the SEC published the official announcement, tweeting a “4,” meaning to ignore F.U.D, or fear, uncertainty, and doubt:

4.

Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits.

We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.

🙏

— CZ 🔶 Binance (@cz_binance) June 5, 2023

The charges extend to the manipulation of customers’ assets, commingling customer funds and diverting them to Zhao’s owned entity, Sigma Chain. BAM Trading and BAM Management US Holdings, companies that manage Binance.US together with Binance, are accused of misleading “investors about non-existent trading controls over the Binance.US platform,” while Sigma Chain allegedly engaged in manipulative trading practices that “inflated the platform’s trading volume.”

The SEC’s lawsuit, filed in the U.S. District Court for the District of Columbia, accuses the trading platforms of violating federal registration-related securities. Both Binance and BAM Trading are charged with operating unregistered national securities exchanges, broker-dealers and clearing agencies, and with the unregistered offer and sale of BNB and stablecoin Binance USD (BUSD), among other coins. The SEC holds Zhao personally liable for these alleged registration violations.

SEC Chair Gary Gensler warned the public to be wary of investing their assets with or on such unlawful platforms, stating in the press release:

“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”

Gurbir Grewal, Director of the SEC’s Division of Enforcement, reinforced Gensler’s warnings, saying, “Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits.”

These SEC allegations follow the Commodity Futures Trading Commission lawsuit against Binance. The CFTC had targeted the crypto exchange and its CEO in March, asserting that they were knowingly facilitating the trade of unregistered crypto-derivative products within the U.S. territory, a clear violation of federal legislation. Genlser further stated:

“Despite their years-long efforts to not ‘be held accountable,’ today’s complaint begins the process of doing so.”

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