Binance and founder Changpeng Zhao sued by SEC: Here's why
What's the story
World's largest crypto exchange Binance is facing multiple legal challenges in the US. Now, the Securities and Exchange Commission (SEC) has sued the exchange and its founder Changpeng Zhao for violating security rules. The securities regulator filed 13 charges against the crypto exchange in the US District Court for the District of Columbia. Let's see what the regulator accuses Binance of.
Context
Why does this story matter?
The pressure is mounting on Binance in the US. The SEC is the third US government authority to accuse the crypto exchange of malpractices in the last few months. In March, the US Commodity Futures Trading Commission (CFTC) accused Binance and Zhao of running an "illegal" exchange. The US Department of Justice is also investigating the exchange of possible violations of Russian sanctions.
Unregulated
Binance allegedly allowed US customers to use unregulated international exchange
In the lawsuit, the SEC alleged Zhao and Binance "subverted" their own controls by allowing "high-value" US customers to trade on Binance's unregulated international exchange (Binance.com). The regulator also accused Zhao and Binance of secretly controlling Binance's US platform (Binance.US) from behind the scenes. A Binance compliance officer allegedly said the company was "operating as a f***ing unlicensed securities exchange in the USA bro."
Other charges
SEC accused Binance of commingling customers' assets
The SEC's allegations do not end there. Per the regulator, Binance and Zhao commingled customers' assets and diverted them to different entities, including Sigma Chain and Merit Peak Limited (both owned by Zhao). Merit Peak and Sigma Chain were allegedly used for inflating trade volumes. The SEC also accused Sigma Chain of engaging in "wash trading" or trading with themselves.
Unregistered
Binance.com and Binance.US allegedly violated registration requirements
In the complaint, the SEC accused Binance and its US affiliate of operating as "exchanges, brokers, dealers, and clearing agencies" from at least 2017. The regulator said both violated registration requirements. It added that Zhao is also responsible for these violations as a "control person." According to SEC, Binance.com and Binance.US earned at least $11.6 billion in revenue from transaction fees.
Official words
We are disappointed by the complaint: Binance
"We are disappointed that the U.S. Securities and Exchange Commission chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief," Binance wrote in a blog post. "We have actively cooperated with the SEC's investigations... But despite our efforts, with its complaint today, the SEC abandoned that process and instead chose to act unilaterally and litigate," it added.