New legal battle looms as SEC chooses a new target.
The United States financial watchdog, the Securities and Exchange Commission (SEC), has taken legal action against the global cryptocurrency platform, Binance, including its US subsidiary and the company's CEO, Changpeng Zhao.
The lawsuit was officially filed in the District Court for the District of Columbia on June 5th.
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This legal move sees the US regulator leveling a handful of accusations against Binance, which extend from unregistered transactions of Binance USD (BUSD) and BNB tokens to the neglect of Binance.com registration as a securities exchange.
Additionally, the SEC asserts that Binance, alongside its US legal entity, BAM Trading, bypassed registering Binance.US as a securities exchange and broker. The lawsuit also targets CEO Zhao as the controlling force behind these alleged breaches.
The court documents highlight significant points, stating:
Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk. <…> Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes.
The documents further divulge, claiming that BAM Trading and BAM Management misled equity, retail, and institutional investors about supposed surveillance and anti-manipulation mechanisms on the Binance.US platform, which was essentially non-existent.
The charges raised by the SEC elaborate on allegations that Binance.US actively allowed wash trading through Sigma Chain, CZ's "market-making" trading firm, and neglected to prevent US investors from accessing Binance.com.
The allegations closely mirror those presented by the Commodity Futures Trading Commission on March 27th.
The lawsuit raises the notion that the tokens traded on Binance's platform constitute securities. The list of these tokens includes BNB, BUSD, Cardano (ADA), Cosmos (ATOM), Filecoin (FIL), Polygon (MATIC), Algorand (ALGO), Solana (SOL), Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS), and COTI.
Gary Gensler, Chair of the SEC, commented on the case:
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.
In the wake of the lawsuit, Binance and Binance.US have issued separate responses. Through a tweet, Binance.US labeled the SEC's allegations as the "most recent instance of enforcement-based regulation," firmly stating their intention to defend themselves against these "unfounded" charges.
Meanwhile, Binance stated in a blog post:
From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. <…> While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis.
The post further refutes any claims of risk to user assets on the Binance.US platform as "plainly false" and goes on to suggest that the SEC's actions seem more focused on claiming jurisdictional authority rather than protecting investors.
The SEC aims to permanently restrain Binance and CZ from further operations, in addition to the recovery of any wrongfully acquired profits, along with interest and financial penalties.
The landscape of cryptocurrency regulation remains turbulent, and this latest legal action by the SEC indicates that even industry giants are not exempt from the watchdog's purview.
