The SEC accused Binance and Zhao of operating a Web of deception that included artificially inflating its trading volumes and diversifying customer assets, the SEC said on Monday.
The SEC's complaint, filed in federal court in Washington, D.C., alleged that Binance and Zhao were secretly controlling customers assets, allowing them to commingle and divert customer funds, and that Binance created separate US companies as part of an elaborate scheme to evade federal securities laws. The SEC alleged that from at least September 2019 until June 2022, Sigma Chain, a trading firm owned by Zhao, had engaged in wash trading that artificially inflated the trading volume of crypto asset securities on Binance. We allege that Zhao and Binance individuals engaged in an extensive web of deception, conflicts of interest, lack of Disclosure, and calculated evasion of the law, said SEC Chairman Gary Gensler in a statement.
Binance did not immediately respond to a request for comment on the charges. Binance said in a statement that it will respond to the SEC's complaint and said the exchange's staff is standing by, ensuring systems are stable, including withdrawals and deposits. Binance's cryptocurrency, BNB, the world's fourth largest by market size, dropped more than 5 per cent on the news.
The move is the latest in a series of legal woes for Binance, which was also sued by the Federal Trade Commission CFTC in March for operating what the regulator alleged were an illegal exchange and a sham compliance program, Zhao said. Binance is also being investigated by the Justice Department for possible corruption and money laundering, according to people familiar with the investigation.
Binance, the world's biggest cryptocurrency exchange, was established in 2017 in Shanghai, China, by CEO Changpeng Zhao, a Canadian citizen born and raised until the age of 12 in China.
Binance's holding company, which is based in the Cayman Islands, said it does not have a headquarters and declined to state the location of its main Binance.com exchange.
Binance's global trading platform, Binance.com, dominates the crypto trading industry, processing trades worth about $65 billion a day with up to 70 percent of the market.
The company has processed at least $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, Reuters has said.
Reuters also reported that Binance commingled its clients' funds with its corporate revenues in Silvergate Bank account belonging to trading firm Merit Peak, in violation of US financial rules that require client money to be kept separate.
Binance denies mixed customer deposits and company funds, saying users who sent money into the accounts were not making deposits but instead bought Binance's bespoke dollar-link crypto token.