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On Monday, the U.S. Securities and Exchange Commission (SEC) filed numerous charges against Binance, representing one of the agency’s most notable enforcement actions in the history of the crypto sector.
Let’s examine the regulator’s most striking accusations against the exchange, along with Binance’s rebuttal to these assertions.
What Did Binance Do?
The 136-page complaint alleged that Binance and Binance US engaged in “unregistered offers and sales” of crypto asset securities while operating as an “exchange, broker-dealer, and clearing agency” without the necessary registration.
Included in its unlawful securities offerings were its yield-generation programs “BNB Vault” and “Simple Earn,” in addition to the platform’s native token BNB and its stablecoin BUSD. BNB currently ranks as the 4th largest cryptocurrency by market capitalization, and Binance possesses a considerable share of its total supply.
Lacking the oversight typical of registered exchanges and broker-dealers, the SEC stated that Binance also transferred and mixed customer assets in ways that regulated firms would not have been permitted to do.
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For instance, the agency claimed that Binance and Binance US combined billions of dollars in user assets from both platforms within an entity named “Merit Peaked Limited,” which is overseen by both Binance and its CEO, Changpeng Zhao (CZ).
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These assets were subsequently sent to third parties, akin to the actions taken by former FTX CEO Sam Bankman-Fried at his now-defunct exchange.
Overall, the lawsuit asserts that Binance and CZ maintained control over Binance US and the assets on its platform, despite the facade of independence from the U.S. entity.
It also accused Binance of covertly continuing to serve its most valuable U.S. clients at the international exchange, as alleged by the Commodities and Futures Trading Commission in March.
Lastly, the SEC claimed that a Zhao-controlled entity known as “Sigma Chain” participated in wash trading at Binance US to artificially inflate the trading volume and valuation of specific assets on the platform. This was feasible since the entity did not implement the “surveillance or manipulative trading controls” that the firm’s management had assured investors.
Binance’s Punishment and Response
As a consequence of its infractions, the SEC aims to prohibit Binance from engaging in the securities and crypto trading sectors entirely and to impose disgorgement penalties for any illicit gains resulting from its actions, along with pre-judgment interest.
In a public response letter, Binance accused the SEC of failing to prioritize investors, instead seeking to gain “jurisdictional ground” in regulating crypto against other authorities.
“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary,” the company stated.
Binance refuted claims made by Reuters last month that it had combined user funds with corporate funds, asserting that any “mixing” that took place was merely to convert users’ dollar deposits into BUSD.
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