U.S. securities market regulators have sued Binance, the world’s largest cryptocurrency exchange, alleging violations including commingling billions of dollars in customer cash with a separate trading firm owned by its chief executive.
The 13 civil charges filed by the SEC on Monday are the latest regulatory blow against Binance and its CEO Changpeng Zhao, after another U.S. financial institution sued it in March.
The SEC’s alleged violations include operating an unregistered exchange, broker-dealer, and clearinghouse, and misrepresenting trading controls and oversight on the Binance US platform. The SEC complaint alleges that between mid-2018 and mid-2021, the group had revenues of at least $11.6 billion.
The SEC accused Binance and Zhao of controlling customers’ assets, allowing the merger or rerouting of funds, and billions of dollars being sent to Merit Peak Limited, a crypto asset trading firm incorporated by Zhao in the British Virgin Islands.
Assets were also allegedly transferred to Sigma Chain, a separate entity owned and controlled by Zhao, which the SEC said engaged in “manipulative trading” that inflated trading volumes on Binance’s U.S. platform.
“Through 13 counts, we allege that Zhao and the Binance entity engaged in a broad web of deception, conflicts of interest, lack of disclosure, and willful evasion of the law,” said SEC Chairman Gary Gensler.
Binance’s offshore trading platform, Binance.com, said it was disappointed and frustrated by the SEC’s action, adding that while it took the regulator’s allegations seriously, they “should not be the subject of SEC enforcement action.” Binance US called the lawsuit “baseless.”
While Binance and Zhao “publicly claimed” that U.S. customers were blocked from accessing Binance.com, they “subverted their own controls and secretly allowed” top U.S. customers to trade on the platform, the SEC said.
“We allege that Zhao and the Binance entities not only knew the rules of the road, but that they deliberately chose to circumvent them, putting their customers and investors at risk — all in the name of maximizing their own profits,” said Gurbir Grewal, SEC Enforcement Department heads.
According to the SEC complaint, Binance’s unnamed chief compliance officer told a colleague in 2018: “Brother, we’re a fucking unlicensed stock exchange in the US.”
The SEC’s action comes after derivatives market watchdog the U.S. Commodity Futures Trading Commission filed a lawsuit against Binance in March, alleging that it illegally served U.S. clients and that the majority of its reported trading volume and profitability came from “extensive solicitation and exposure” to U.S. client.
“Battling two powerful regulators at the same time will take precious time and resources, and Binance will undoubtedly feel the impact,” said former CFTC chief of staff Charlie Cooper.
Also in March, the Financial Times revealed that Binance, which has long claimed to have no formal headquarters, had concealed extensive ties to China for years.
A month ago, New York regulators halted further issuance of Binance-branded stablecoins, digital tokens that allow cryptocurrency traders to get in and out of the market quickly. Before the shutdown of a token called BUSD, it accounted for about 40% of Binance’s trading volume.