US regulators filed a lawsuit against Binance and Changpeng Zhao for a string of violations, calling the world’s biggest crypto exchange “an extensive web of deception.”
On June 5th, the Securities and Exchange Commission (SEC) revealed 13 charges against the world's largest crypto exchange and its founder Changpeng Zhao.
“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,”
said SEC Chair Gary Gensler.
The watchdog alleges that the crypto exchange failed to enforce restrictions on US customers and provided misleading information to investors regarding market surveillance controls.
SEC asserts that, despite public statements by Zhao and Binance claiming that US customers were barred from conducting transactions on Binance.com, they actually circumvented their own restrictions to permit high-value US customers to trade on the platform secretly.
Additionally, the SEC alleges that although Zhao and Binance publicly presented Binance.US as an independent trading platform for US investors, they secretly maintained control over its operations.
“They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes to keep high-value US customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,”
claimed Gensler.
There are also accusations that the platform was artificially inflating trading volumes and diverting customer funds. The exchange was suspected to be covertly controlling customers' assets, enabling them to commingle and divert investor funds at their discretion.
The complaint alleges that the defendants concealed the fact that they commingled billions of dollars of investor assets and surreptitiously directed these funds to an external entity, Merit Peak Limited. Notably, it has been disclosed that Zhao also owns Merit Peak Limited.
“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits,”
said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“Despite their years-long efforts to not ‘be held accountable,’ today’s complaint begins the process of doing so,” concluded his statement Grewal.
Binance denies the accusations
Binance denies SEC accusations and claims to “intend to defend the platform vigorously.”
“Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.” wrote Binance in a blog post.
After SEC filed the lawsuit, crypto markets experienced a plunge, with Bitcoin going down 5.3% and Binance's BNB cryptocurrency falling by 9.4%.
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