The US Securities and Exchange Commission has sued crypto exchange Binance over a litany of securities law violations, alleging the firm engaged in an "extensive web of deception".
Binance Holdings, BAM Trading Services and founder Changpeng Zhao collectively face 13 charges, including operating unregistered national securities exchanges, broker-dealers and clearing agencies, the unregistered offer and sale of Binance's own crypto assets, and misleading investors.
In a release issued yesterday (5 June), the SEC alleged that while Zhao and Binance publicly claimed US customers were restricted from transacting on the platform, the founder and company "in reality subverted their own controls to allow high-value US customers to continue trading".
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The release also alleged that while Binance.US was publicly claimed to be a separate, independent trading platform, it was "secretly controlled" by Zhao and Binance.
A Zhao-owned and controlled entity called Sigma Chain was also the recipient of customer assets, the SEC alleged, with both Zhao and Binance able to exercise control of customer assets, allowing them to commingle or divert customer assets to a range of sources, including Sigma Chain and another Zhao-owned third-party Merit Peak Limited.
Sigma Chain is accused of engaging in "manipulative trading" to artificially inflate the platform's trading volume, while BAM Trading and BAM Management US Holdings is accused of misleading investors over "non-existent trading controls".
SEC chair Gary Gensler accused Zhao and Binance of engaging in "an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law".
"As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied," Gensler said.
"They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value US customers on their platforms.
"The public should beware of investing any of their hard-earned assets with or on these unlawful platforms," the chair said.
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Director of the SEC's division of enforcement Gurbir Grewal added: "We allege that 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 maximise their own profits."
In a statement, Binance accused the SEC of undermining American's role as a "global hub for financial innovation and leadership" and said it would defend its platform "vigorously".
It accused the SEC of seeking to "make headlines" rather than protect investors and denied all allegations that user assets on Binance.US "have ever been at risk".
In August 2021, the Financial Conduct Authority said Binance was "not capable of being effectively supervised" and considered the platform to be in breach of several regulatory requirements.
This followed a June 2021 order for the company to stop all regulated activity in the UK.
