The chief executive of Binance, the largest online cryptocurrency exchange, said he is building a recovery fund to help those in the industry, while saying the industry “will be fine.”
Ben McShane / Contributor / Getty Images
SEC 13 charges filed be opposed to BinanceThe world’s largest cryptocurrency exchange, and its co-founder Changpeng Zhao, claim they mixed user funds worth billions of dollars and sent them to a European company controlled by Changpeng Zhao.
U.S. regulators said Zhao and his exchange were committed to subverting “their own controls,” allowing U.S. high-net-worth investors and clients to continue trading on Binance’s unregulated international exchange.
A senior executive allegedly told the compliance officer that the company was operating as a “brother, unlicensed fucking stock exchange in the US.”
The complaint alleges that Binance created Binance.US as a shield for the main company and Zhao to “reveal, delay and resolve” law enforcement targets and isolate Binance.
According to the SEC, the two-term CEO of Binance.US expressed deep concern about Zhao’s level of control. Both testified before federal regulators: Neither was named, but its first and second chief executives were Katherine Corley and Brian Brooks.
“I’m not actually the one running the company, I don’t think the mission I signed up for was the mission. When I realized that, I left,” said a former Binance.US CEO who is considered the “BAM CEO B” testified to the SEC.
From June 2018 to July 2021, Binance generated $11.6 billion in revenue, the majority of which came from transaction fees, the complaint said. Since its inception, the exchange has worked “at first publicly and then covertly” under the direction and control of its founder, Zhao, in an effort to attract U.S. customers, the SEC said.
Binance knew tens of thousands of customers were in the U.S. but chose not to act, despite federal law prohibiting unregistered offerings and sales of securities, the SEC said. SEC complaints continue, and Binance’s eventual compliance in 2019 was largely a public show.
Zhao ordered the creation of circumvention programs for high-net-worth clients to use VPN services to hide their U.S. locations and file compliance documents to obscure their country of origin, the SEC said.
CNBC previously reported on how Binance employees encouraged users to circumvent the exchange’s Know Your Customer system via a VPN.
“We do need to let users know that they can change their KYC on Binance.com and continue to use it. But the message, the message needs to be handled very carefully because anything we send is public. We can’t take it seriously,” Zhao allegedly told his top team in 2019.
The SEC also accused Binance and Zhao of using a market-making firm they controlled to inflate transaction prices and profit off customers.
Merit Peak and Sigma Chain allegedly acted as “market makers” for both Binance platforms, meaning they were always available to fulfill customer orders to buy or sell crypto assets. But the SEC complaint highlights multiple problems with the roles of the two firms: Both were beneficially owned by Zhao and collected “tens of billions of dollars” in client funds. The firms also commingled customer funds with those from Binance, similar to allegations against bankrupt cryptocurrency exchange FTX.
Most damaging to investors, they allegedly engage in “fake trading,” artificially propping up crypto asset prices by trading with themselves.
Sigma Chain collected $190 million for its beneficial owner, Zhao, the SEC said. The “self-trading company” then purchased a “yacht” for $11 million, the complaint alleges.
Zhao dismissed the charges on twitter By saying “4,” which is a popular saying in the Binance community, users are urged to ignore fear, uncertainty, and doubt, or “FUD.”
The complaint comes after the CFTC filed similar charges against the cryptocurrency exchange, claiming it failed to prevent U.S. customers from accessing it.
“Once we see the complaint, we will respond,” Zhao said on Twitter. “The media got the information before we did.”
The SEC said the defendants “blatantly disregarded” federal law. The complaint includes a “high-level” breakdown of Binance’s ownership structure, with Zhao and his holding company allegedly controlling 100% of various entities in Binance and Binance.US.
Shareholding structure of Binance CEO Zhao
Securities and Exchange Commission
“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,” SEC Chairman Gary Gensler said in a statement. release.