Securities and Exchange Commission names Binance founder and CEO Zhao in a case filed in federal court in Columbia with 13 charges The United States Securities and Exchange Commission (SEC) on Monday sued Binance, the world’s largest cryptocurrency exchange, and its founder and controlling shareholder Changpeng Zhao, over 13 charges.
The SEC filed the case in federal court in the District of Columbia. Binance Holdings, BAM Trading Services, and Zhao, popularly known as CZ, were accused of breaking a variety of US securities laws.
The crypto firm, or Zhao, hasn’t issued a statement as yet, but CZ tweeted moments later: “Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits. We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.”
Among other things, the SEC alleges that, while Zhao and Binance publicly claimed that US customers were restricted from transacting on Binance.com, Zhao and his organisation in reality subverted their own controls to secretly allow high-value US customers to continue trading on the platform.
The SEC also alleged that while Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for US investors, they secretly controlled the Binance.US platform’s operations behind the scenes.
It also said that Zhao and his firm permitted the platform to divert customer assets as they pleased, including to an entity Zhao owned and controlled called Sigma Chain. It accused the defendants of concealing the fact that it was commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, which is also owned by Zhao.
Gary Gensler, SEC Chair, said in a statement: “Through 13 charges, 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.
“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.
“They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value US customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
Gurbir S Grewal, Director of the SEC’s Division of Enforcement, added: “We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximise their own profits.
“By engaging in multiple unregistered offerings and also failing to register while at the same time combining the functions of exchanges, brokers, dealers, and clearing agencies, the Binance platforms under Zhao’s control imposed outsized risks and conflicts of interest on investors.
“Those risks and conflicts are only heightened by the Binance platforms’ lack of transparency, reliance on related-party transactions, and lies about controls to prevent manipulative trading. Despite their years-long efforts to not ‘be held accountable,’ today’s complaint begins the process of doing so.”
The SEC lawsuit adds to allegations brought in March of this year by the US regulator Commodity Futures Trading Commission (CFTC) that the crypto giant and Zhao knowingly offered unregistered crypto derivatives products in the US against federal law.
Many of the allegations in the SEC’s lawsuit also resemble the CFTC’s complaint.