Binance, the world’s largest cryptocurrency exchange, and its CEO and founder, Changpeng Zhao, are facing a lawsuit filed by the United States Securities and Exchange Commission (SEC). The SEC alleges that Binance failed to restrict US customers from its platform, misled investors about its market surveillance controls, operated an unregistered securities exchange, and secretly controlled customers’ assets. The complaint also claims that Binance created separate US entities as part of a scheme to evade US federal securities laws.
According to the SEC, a trading firm owned and controlled by Zhao, called Sigma Chain, engaged in wash trading on the Binance.US platform, artificially inflating the trading volume of crypto asset securities. SEC Chair Gary Gensler stated that Zhao and Binance entities were involved in deception, conflicts of interest, lack of disclosure, and evasion of the law.
In response to the lawsuit, Binance stated that it intends to vigorously defend its platform, emphasizing that it is not a US exchange, thereby limiting the reach of the SEC’s actions. The blog post assured users that their assets on the Binance.US platform have never been at risk.
The news of the lawsuit had a negative impact on the cryptocurrency market, with Bitcoin falling 6 percent to its lowest level in nearly three months. Binance’s own cryptocurrency, BNB, also dropped more than 5 percent.
This legal challenge is not the first for Binance. In March, the US Commodity Futures Trading Commission sued the exchange for operating an alleged illegal exchange and inadequate compliance programs. Binance is also under investigation by the US Department of Justice for suspected money laundering and sanctions violations.
Market experts believe that the SEC’s allegations could severely hinder Binance and have far-reaching consequences for the crypto industry. Binance dominates the market, processing trades worth around $65 billion per day, accounting for up to 70 percent of the market.
While Binance’s holding company is based in the Cayman Islands, the exchange does not have a disclosed headquarters location. Binance was founded in Shanghai in 2017 by Changpeng Zhao, a Canadian citizen of Chinese descent.
It is important to note that Binance has faced criticism before. Reuters previously reported that the company processed at least $10 billion in payments for criminals and entities attempting to evade US sanctions. Additionally, there have been allegations that Binance commingled customer deposits with company funds, violating US financial rules. However, Binance denies these allegations, stating that customer money sent to a Silvergate Bank account was used to purchase Binance’s dollar-linked crypto token, not deposited into the account.
Overall, Binance’s legal troubles and regulatory challenges have raised significant concerns about the future of the exchange and its impact on the cryptocurrency market. The outcome of the lawsuit and the ongoing investigations will likely have a significant effect on Binance’s operations and the industry as a whole.