The United States Securities and Exchange Commission (SEC) filed a suit against Binance, its U.S. platform and CEO Changpeng Zhao (CZ) in the District Court for the District of Columbia on June 5.
The U.S. regulator pressed 13 charges against Binance, including unregistered offers and sales of the BNB (BNB) and Binance USD (BUSD) tokens, the Simple Earn and BNB Vault products, and its staking program. In addition, the SEC alleges in the suit that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. Further, it claims Binance and BAM Trading — Binance.US’ legal entity — failed to register Binance.US as an exchange, broker and clearing agency. CZ was sued as a “controlling person."
According to the suit:
“Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk. […] Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes.”
It continued, “Defendants BAM Trading and BAM Management defrauded equity, retail, and institutional investors about purported surveillance and controls over manipulative trading on the Binance.US Platform, which were in fact virtually non-existent.”
Among the allegations behind the charges are claims that Binance failed to restrict U.S. investors from using Binance.com and that Binance.US engaged in wash trading through its “primary undisclosed ‘market making’ trading firm Sigma Chain,” which is owned by CZ.
In addition, the suit claims that funds from Binance and Binance.US were commingled in an account controlled by CZ-associated Merit Peak Limited. These charges echo complaints filed by the Commodity Futures Trading Commission on March 27. CZ denied those charges in a detailed blog post.
SEC Chair Gary Gensler said in a statement:
“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.”
The SEC is demanding permanent enjoinment on Binance and CZ from further activities, disgorgement of ill-gotten gains with interest and financial penalties.
The suit claims that tokens traded on the Binance exchange were securities. Those tokens are BNB, BUSD, Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and COTI.
Binance and Binance.US responded separately to the suit. Binance.US stated in a tweet the SEC’s claims are its “latest example of regulation by enforcement.” The suit “is baseless and we intend to defend ourselves vigorously,” it continued.
In a blog post on Binance.com, the company wrote:
“From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. […] While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis.”
“Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong,” Binance.com added. “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."