Binance and Changpeng ‘CZ’ Zhao Face Multiple SEC Charges

The SEC is bringing charges against Binance and its CEO, Changpeng Zhao

article-image

Binance CEO Changpeng Zhao | Stephen McCarthy/ for Web Summit/"Changpeng Zhao" (CC license) modified by Blockworks

share

The SEC accused Binance — the world’s largest cryptocurrency exchange — of mishandling customer funds and failing to register under securities laws in a court filing released on Monday, June 5. 

The lawsuit also claims that Binance — as well as BAM Trading and Binance.US — engaged in the unlawful sale of securities and failed to register under the Exchange Act.

The SEC alleges that “First, Binance and BAM Trading, under Zhao’s leadership and control, have unlawfully offered three essential securities market functions—exchange, broker-dealer, and clearing agency—on the Binance Platforms without registering with the SEC. Acutely aware that U.S. law requires registration for these functions, Defendants nevertheless chose not to register, so they could evade the critical regulatory oversight designed to protect investors and markets.”

The SEC claims that BAM Trading’s staking program is an investment contract, which falls under its definition of a security.

Both Binance and BAM Trading “have engaged and continue to engage in unregistered offers and sales of crypto asset securities, effecting unregistered crypto asset securities transactions on the Binance Platforms.” 

​​The SEC also claims Binance and CEO Changpeng ‘CZ’ Zhao were “intimately involved in directing BAM Trading’s U.S. business operations.”

“Zhao directed Binance to assist certain high-value U.S. customers in circumventing those controls and to do so surreptitiously because—as Zhao himself acknowledged—Binance did not want to ‘be held accountable’ for these actions,” the filing stated.

The lawsuit claims that, through his social media usage, both Zhao and Binance “actively solicited” US investors, and Binance employees were asked to retain US investors on the Binance.com Platform despite Binance’s June 2019 announcement that “it would no longer serve U.S. investors.”

The SEC further alleges in the complaint that BNB, the native token of the Binance Smart Chain, is an unregistered security, and states the various Binance staking programs are also not in compliance with its registration requirements.

“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,” said Gurbir S. Grewal, director of the SEC’s enforcement division.

When reached for comment, Binance.US pointed Blockworks to its tweet on the lawsuit. 

“While we remain open to a productive compromise that protects our customers and their digital assets, with this latest action taken against our business and following similar actions taken against Coinbase, Gemini, Kraken, and other market participants, the SEC seeks a near eradication of our industry,” the tweet said.

Loading Tweet..

“The SEC’s choice is disheartening for Binance, its users, and the industry as a whole.  However, this action will not stop us from continued robust collaboration with other regulators and policymakers across the globe, and we will continue to vigorously defend our business and this technology,” Binance told Blockworks in an emailed statement.

Updated June 5, 2023 at 1:25 pm ET: Added statement from Binance.

Updated June 5, 2023 at 12:49 pm ET: Added reply from Binance.US.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

MON - WED, MARCH 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience:  Attend expert-led panel discussions and fireside chats  Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts   Grow your network […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Frax report cover.jpg

Research

Frax saw continued development in its frxETH liquid staking derivative and Fraxlend money market throughout 2023. Frax V3 introduces an RWA strategy to drive utility to the protocol's cornerstone product, the FRAX stablecoin.

article-image

Accredited and non-accredited investors worldwide will be able to purchase the Note starting Dec. 6 on US-regulated trading platform INX

article-image

Bitcoin’s next halving is less than five months away. History says they’re bullish but will this time be different?

article-image

Merger is set to allow the combined business to “flex between our different lines of business,” Hut 8 CEO says

article-image

Agency’s decision to start comment window earlier than expected could be bullish for spot bitcoin ETF approval in January, industry watchers say

article-image

Jump Crypto is the trading firm at the center of Terra-related market manipulation allegations

article-image

Funds tied to Coinbase co-founder Fred Ehrsam have made the most of the COIN rollercoaster