U.S. regulators, on Monday, June 5, sued Binance and its CEO, Changpeng Zhao, for allegedly operating a “web of deception,” piling further pressure on the world’s biggest cryptocurrency exchange and sending bitcoin to its lowest in almost three months.
The Securities and Exchange Commission (SEC) complaint, filed in a federal court in Washington, D.C., listed 13 charges against Binance, Zhao and the operator of its purportedly independent U.S. exchange.
The SEC alleged that Binance artificially inflated its trading volumes, diverted customer funds, failed to restrict U.S. customers from its platform, and misled investors about its market surveillance controls.
The SEC also claimed that Binance and Zhao, its billionaire founder and one of the crypto industry’s highest-profile moguls, secretly controlled customers’ assets, allowing them to commingle and divert investor funds “as they please.”
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Binance created separate U.S. entities “as part of an elaborate scheme to evade U.S. federal securities laws,” the SEC also alleged, citing a number of practices first reported by Reuters in a series of investigations into the exchange published this year and in 2022.
From almost three years ago until June 2022, a trading firm owned and controlled by Zhao, Sigma Chain, engaged in so-called wash trading that artificially inflated the trading volume of crypto asset securities on Binance. US platform, the SEC also alleged. Sigma Chain spent $11 million from an account on a yacht, the SEC said.
“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” SEC Chair Gary Gensler said in a statement.
In a blog post, Binance said: “We intend to defend our platform vigorously,” adding that “because Binance is not a U.S. exchange, the SEC’s actions are limited in reach.”
“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure,” the blog post said.
In a statement, Binance said it had “actively cooperated” with the SEC “from the start” and “respectfully disagree” with the SEC’s allegations. Binance had been trying to find a “reasonable resolution” with the SEC but the agency “at the eleventh hour” issued new requests and went to court. Binance said the SEC’s actions appeared to be an effort to “claim jurisdictional ground from other regulators.”
Binance.US, which is ultimately controlled by Zhao, said in a tweet that the lawsuit was “unjustified by the facts, by the law, or by the Commission’s own precedent.”
Bitcoin, the world’s biggest cryptocurrency, fell as much as 6 per cent on the news to its lowest in almost three months. Binance’s own cryptocurrency BNB, the world’s fourth-largest by market size, dropped more than 5 per cent.
Market players said the SEC’s allegations could hobble Binance, with the lawsuit likely to reverberate through the crypto industry. Binance dominates crypto trading, last year processing trades worth about $65 billion a day.
A March report from CCData showed that Binance’s spot market share across top-tier exchanges fell in March for the first time in five months to 57.7 per cent from 62.0 per cent in February. Its derivatives trading volume, however, rose.
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