
The SEC has alleged that Binance did knowingly operate unregistered exchanges.
The SEC filed a civil lawsuit on Monday against Binance Holdings Ltd., BAM Trading Services Inc. and founder Changpeng Zhao, alleging violations of U.S. securities laws. The suit alleges that the company operates unregistered exchanges, misrepresented trading controls and oversight on the Binance.US platform, and engages in the unregistered offer and sale of securities.
Why does the SEC have a case against Binance and related companies?
The SEC accused Binance and BAM Trading of operating unregistered exchanges, brokers, dealers, and clearing agencies of at least $11.6 billion in revenue, mostly from transaction fees.
Binance said in its complaint that it violated U.S. laws because of the unregistered offer for sale of its own BNB token and BUSD stablecoin, some cryptocurrency-lending products and offering staking-as-a-service.
The SEC also claims that Zhao and Binance, among other high-value U.S. customers, were secretly continuing trading on Binance.com, despite publicly stating otherwise. In 2019, Binance stopped serving U.S. customers and set up Binance.US alongside BAM Trading to meet U.S. regulatory standards.
The SEC contends that Binance.US, which was touted as an independent platform for U.S. investors, was actually controlled by Zhao and Binance itself.
The complaint accuses BAM Trading and BAM Management of misusing customer funds on the Binance.US platform, which allegedly resulted in the commingling of customer funds with an outside entity controlled by Zhao and wash trading on Binance.US by a trading firm owned by Zhao.
Binance's official response to the SEC complaint is that customer funds have always been safe and secure on their platforms.
The actions of the SEC here appear to be in service of an effort to rush to claim jurisdictional ground from other regulators-and investors do not appear to be the SEC's priority. Binance is an easy target now caught in the middle of a regulatory tug-of-war, because of our size and worldwide name recognition, the company said in a statement.
The charges raise questions about the SEC's continued efforts to regulate the cryptocurrency industry. Crypto exchange Bittrex has been accused by the SEC of breaching securities laws earlier this year. The SEC is expected to take action against Coinbase at some point, as the crypto exchange received a Wells notice from the regulatory agency earlier this year.
The SEC complaint alleges that the trading of customer funds with an outside entity controlled by Zhao, known as Merit Peak Limited, has resulted in the laundering of trading on the Binance.US platform.
Zhao, who owns Sigma Chain, has been accused of conducting wash trading on Binance.US from September 2019 to June 2022 in an effort to artificially inflate the platform's volume.
The complaint adds that much of the alleged washed trading was related to important timeframes in Binance's history, such as during the initial launch of Binance.US, after the initial listing of various crypto asset securities, and during the time leading up to BAM Trading's seed funding round.
The complaint also included a chart indicating more than 35% of Binance.US's total COTI trading volume was washed trading conducted by Sigma Chain on multiple days in April 2022.
The SEC complaint lists twelve different crypto assets as securities that were made available for trading on Binance's platforms. The crypto assets called out by the name are Coti, Cardano, Polygon, filecoin, Cosmos, The Sandbox, Decentraland, Algorand, Axie Infinity Shards and Solana. The complaint points out that this is not an exhaustive list of all securities available for trade on Binance's platforms.
Furthermore, the complaint points out that Binance has made numerous crypto assets available for trading on its platforms, which have already faced enforcement actions, including Amp, Augur, TerraUSD and Tron.
The complaint alleges that the offers and sales of BNB, BUSD, Binance's program, and Binance's program were examples of unregistered and illegal securities offerings, in addition to BAM Trading's staking-as-a-service program.