The Securities and Exchange Commission has sued Binance – the world’s largest cryptocurrency exchange – claiming violations of US securities regulations.
Federal regulators have filed 13 charges against the company and its founder Changpeng Zhao.
The SEC claims that Binance and Zhao commingled billions of dollars worth of user funds and transferred them to a European company he controlled.
It is claimed the company deliberately evaded their own controls to allow high net worth US investors to trade on Binance’s unregulated international exchange.
The complaint highlights instances where Binance executives referred to the company as an unlicensed securities exchange in the US.
The SEC alleges that Binance created Binance.US as a shield to protect the main company and Zhao from law enforcement scrutiny.
Former CEOs of Binance.US, Catherine Coley and Brian Brooks, expressed concerns about Zhao’s level of control.
One former CEO testified before federal regulators, stating that they realized the company’s mission was not what they had signed up for and subsequently left.
The SEC claims Binance earned $11.6 billion in revenue, primarily from transaction fees, between June 2018 and July 2021.
It alleges despite knowing tens of thousands of US customers were using the platform, Binance allegedly failed to take action to comply with federal laws governing the offer and sale of securities.
The SEC alleges that Binance’s compliance efforts in 2019 were largely superficial.
The SEC also accuses Zhao of ordering the creation of an evasion plan for high-net-worth customers.
It has involved using VPN services to hide their US location and submitting compliance documents to obscure their country of origin.
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The SEC further alleges Binance and Zhao used market-making companies they controlled to manipulate trading prices and profit from customers.
In response to the charges, Zhao dismissed them on Twitter, using the popular Binance community refrain of “4” to urge users to ignore fear, uncertainty, and doubt (FUD).
Binance issued a blog post expressing disappointment in the SEC’s complaint and claiming the company has cooperated with the SEC’s investigations.
The SEC Chair, Gary Gensler, said charges against Binance and Zhao reveal a “blatant disregard” for federal law.
He accused them of deception, conflicts of interest, lack of disclosure, and calculated evasion of regulations.