Binance and the cryptocurrency exchange’s CEO have collectively been hit with numerous charges from the Securities and Exchange Commission (SEC).
With its 13 total charges, the SEC complaint accused Binance Holdings, CEO Changpeng Zhao, BAM Trading and BAM Management US Holdings of committing breaches of the Securities Act and the Exchange Act, two U.S. laws pertaining to securities. The agency’s filing of the complaint took place Monday.
The announcement that the SEC had moved to file the charges impacted the prices of many cryptocurrencies, with those of Bitcoin, Ethereum, Cardano, Ripple and Solana experiencing decreases afterward.
The SEC claimed BAM Trading and BAM Management were formed by Binance and its chief executive in an effort 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," things the agency argued were not true. The regulator accused Binance, Zhao and other executives of being aware of violating U.S. securities laws, with one purportedly saying "we are operating as a f---ing unlicensed securities exchange in the USA bro" in late 2018, according to the filing.
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The defendants "were free to and did transfer" customer crypto assets "as Defendants pleased, at times commingling and diverting them in ways that properly registered brokers, dealers, exchanges, and clearing agencies would not have been able to do," the SEC complaint alleged.
The filing claimed "billions" of funds were sent to an account held by Zhao-owned Merit Peak Limited that were "subsequently transferred to a third party apparently in connection with the purchase and sale of crypto assets." The SEC accused Binance of sending funds to Sigma Chain, a Zhao-controlled firm that allegedly "engaged in wash trading that artificially inflated the trading volume of crypto assets securities" on Binance.US.
As part of the complaint, Binance and BAM Trading face allegations of doing unregistered work in exchange, broker-dealer and clearing agency functions, as well as accusations of "multiple unregistered offers and sales of crypto asset securities and other investment schemes," according to the SEC. BAM Trading and BAM Management also allegedly "misled investors about non-existent trading controls" for Binance.US.
Binance issued a statement on the SEC complaint, saying it "intend[s] to defend our platform vigorously." It said it had "engaged in extensive good-faith discussions to reach a negotiated settlement to resolve [the SEC’s] investigations," accusing the agency of "an effort to rush to claim jurisdiction ground from other regulators" and of wanting to "make headlines."
"Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong, and there is zero justification for the Staff’s action in light of the ample time the Staff has had to conduct their investigation," the company said. "All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary."
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The company also noted that the SEC’s "actions are limited in reach" due to Binance not being a U.S.-based exchange. It "remains committed to productive engagement to ensure the next generation of cryptocurrency regulation fosters innovation while implementing and ensuring important consumer protections," Binance said.
In its complaint filed Monday, the SEC asked for several things in terms of a final judgment, including to permanently bar the defendants from further alleged violations of securities laws, to force them to give up "ill-gotten gains," and to subject them to fines.
It sought a permanent injunction against them "directly or indirectly" conducting unregistered securities transactions, as well as against them acting as an unregistered exchange, broker, dealer or clearing house, according to the filing. It also asked the court to forbid Zhao from "acting as an officer or director of any issuer whose securities are registered" with the SEC or "required to file reports" to it.
In the meantime, it submitted a request for various measures as "temporary and preliminary injunctive relief" from the court.
Binance and Zhao are also facing legal action from another U.S. regulator, the Commodity Futures Trading Commission.
