The U.S. Securities and Exchange Commission has sued Binance over several alleged violations of the country's securities laws.
The SEC alleged in a lawsuit that Binance and affiliated companies repeatedly lied to customers and misdirected funds to a separate investment fund owned by Binance founder and CEO Changpeng 'CZ' Zhao, in an echo of similar accusations against Binance’s former rival FTX and its founder Sam Bankman-Fried.
The suit, which if successful could bar Binance and Zhao from business in the U.S., also alleges that the company and its affiliate BAM Trading operated as an unregistered securities exchange, broker-dealer and clearing agency, along with selling unregistered securities including BNB and BUSD.
SEC Chair Gary Gensler blasted Zhao and Binance entities as “engaged 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 in a release announcing the enforcement action. “They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
'Elaborate scheme to evade U.S. federal securities laws'
Similar to a complaint filed by the Commodity Futures Trading Commission in March, the SEC alleges that Binance unlawfully operated in the U.S. “as part of an elaborate scheme to evade U.S. federal securities laws by claiming that BAM Trading operated the Binance.US platform independently and that U.S. customers were not able to use the Binance.com platform.”
In allegations that echo similar accusations that FTX and FTX.US were not truly separate, the SEC claims that “in reality, Zhao and Binance maintained substantial involvement and control of the U.S. entity and that, behind the scenes, Zhao directed Binance to allow and conceal many high-value U.S. customers’ continued access to Binance.com.”
The complaint quotes Binance’s chief compliance officer telling a colleague that “[w]e are operating as a fking unlicensed securities exchange in the USA bro.”
The SEC also alleges that Binance.US lied about market manipulation prevention and allowed wash trading by an undisclosed “market making” trading firm, Sigma Chain, which is also owned by Zhao.
"We will issue a response once we see the complaint," Zhao wrote on Twitter Monday.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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