- The US SEC filed a lawsuit against Binance and its CEO CZ.
- The SEC claimed that Binance and Binance.US commingled customers’ money in an account controlled by CZ’s entity – Merit Peak Limited.
The United States Securities and Exchanges Commission (SEC) has filed another crypto-related lawsuit. This time around, the action is taken against the world’s largest crypto exchange by trade volume – Binance.
Notably, the lawsuit extends against the co-founder and CEO of the platform – Changpeng Zhao aka CZ. The commission has accused both parties of violating US securities laws, as per a report by Bloomberg. Additionally, a document on the filing reads,
“Defendants have unlawfully solicited U.S. investors to buy, sell, and trade crypto asset securities through unregistered trading platforms available online at Binance.com (“Binance.com Platform”) and Binance.US (“Binance.US Platform”) (collectively, “Binance Platforms”). Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes.”
The commission further states that both Binance platforms acted as broker-dealers, clearing agencies, and exchanges without prior registration. It also listed the tokens issued by Binance and some of its services as securities issuance. The commission claimed that Binance Coin [BNB] and BUSD – stablecoin issued by Paxos, were security tokens.
Speaking on the action, Binance said,
“Binance remains committed to productive engagement to ensure the next generation of cryptocurrency regulation fosters innovation while implementing and ensuring important consumer protections. Because Binance is not a U.S. exchange, the SEC’s actions are limited in reach. Still, we stand with digital asset market participants in the U.S. in opposition to the SEC’s latest overreach, and we are prepared to fight it to the full extent of the law. “
Binance and securities offerings
Since the release of the SEC action, BNB has recorded a drop in market value. The coin has lost over 4% of its value in the past hour and over 8% in the past seven days, according to CoinMarketCap. The coin was trading at $286.08 and had a market capitalization of over $44 billion.
Is your portfolio green? Check the BNB Profit Calculator
The other tokens that have come under the SEC’s radar are Solana [SOL], Cardano [ADA], Polygon [MATIC], Filecoin [FIL], Cosmos [ATOM], the Sandbox [SAND], Decentraland [MANA], Algorand [ALGO], Axie Infinity [AXS], and COTI. All these coins have started to see their price dip in the market ever since the report emerged.
The SEC further claimed that some of the services offered by Binance also violated securities law as these were offered without proper registration. This included its staking services, and other programs such as BNB Vault, and Simple Earn.
Notably, the commission has previously taken action against crypto entities for offering staking and lending services. The most recent one involved American-based crypto exchange – Gemini, which has challenged the SEC’s lawsuit.
Responding to this allegation, Binance said,
“Unilaterally labeling certain tokens and services as securities – even ones over which other U.S. authorities have asserted jurisdiction – only compounds these problems.”
Binance’s illegal operations in the US
Furthermore, the SEC stated that Binance for offering services to US-based customers without registering and did not implement KYC mechanisms. This was at least until August 2021, which goes against international anti-money laundering laws.
Additionally, the commission asserted that the exchange was aware of this as its CCO claimed that they were “operating as a fking unlicensed securities exchange in the USA bro” in December 2018.
Moreover, the main exchange continued to provide services to high-value customers even after claiming the opposite in 2019, during the launch of Binance.US. The commission claimed that CZ directed Binance to encourage its VIP customers to use VPN while trading and bypass its new KYC rules by updating their old ones.
Did former CEO Catherine Coley testify to SEC?
The filing further claimed that Binance, under the leadership of CZ, had significant control over Binance.US in terms of management and trading function operations. Moreover, the commission’s report claimed that CZ took the final call on most of the decisions including front-end development, and customer account opening processes. The filing further read,
“At least for a significant period of time after Binance.US launched, Binance held and controlled BAM trading data offshore, and at least through much of 2021, BAM trading employees could not obtain certain real-time trading data for Binance.US Platform without Zhao’s personal approval”
Furthermore, the filing brings about “BAM CEO A” who testified with the SEC claiming that she “did not get answers from CZ on why or how or what we would need to do to be able to bring the data over” to the United States”. The last female CEO of Binance.US was Catherine Coley, who has been missing from any crypto-related activity, including social media, since June 2021. Her successor also testified claiming that the situation did not change till his resignation in August 2021.
The commission also claimed that Binance and Binance.US commingled customers’ money in an account controlled by CZ’s entity – Merit Peak Limited. These funds were transferred to a “third party apparently in connection with the purchase and sale of crypto assets”, the filing read. On this matter, Binance, in its response, 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. Rather, the SEC’s actions here appear to be in service of an effort to rush to claim jurisdictional ground from other regulators—and investors do not appear to be the SEC’s priority.”
