On June 5, the District Court for the District of Columbia witnessed the SEC filing a lawsuit against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ). The SEC pressed 13 charges against Binance, which included accusations of conducting unregistered offers and sales of tokens such as BNB and Binance USD, and the Simple Earn and BNB Vault products and its staking program.
Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits.
We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.
— CZ 🔶 Binance (@cz_binance) June 5, 2023
Additionally, the SEC alleged that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency and that Binance.US and BAM Trading, its legal entity, also failed to register Binance.US as an exchange, broker, and clearing agency. CZ was sued as a “controlling person” in the lawsuit.
The defendants had profited billions of U.S. dollars while putting investors’ assets at significant risk. The SEC claimed that the defendants engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes. The suit also accused BAM Trading and BAM Management, entities associated with Binance, of deceiving equity, retail, and institutional investors about surveillance and control over manipulative trading on the Binance.US Platform, which was virtually nonexistent.
Among the charges, Binance failed to restrict U.S. investors from using Binance.com, and Binance.US was involved in wash trading through its undisclosed trading firm Sigma Chain, owned by CZ. Furthermore, the suit claimed that funds from Binance and Binance.US were combined in an account controlled by Merit Peak Limited, associated with CZ. These charges were similar to complaints filed by the Commodity Futures Trading Commission in March, which CZ denied in a detailed blog post.
SEC Chair Gary Gensler stated that Zhao and Binance misled investors regarding their risk controls, manipulated trading volumes, concealed the platform’s operators, the manipulative trading by its affiliated market maker, and the custody of investor funds and crypto assets.
The SEC sought permanent injunctions against Binance and CZ, disgorgement of gains acquired through illicit means with interest, and financial penalties. The suit claimed that the tokens traded on the Binance exchange were securities, including BNB, BUSD, Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and COTI.
Binance.US referred to the SEC’s claims as an example of regulation through enforcement and stated that the suit was baseless, asserting their intention to defend themselves vigorously. Meanwhile, Binance.com mentioned their cooperation with the SEC’s investigations, their efforts to address concerns and answer questions, and their belief that the SEC’s allegations should not lead to enforcement action. It also criticised the SEC’s actions, suggesting they attempted to establish jurisdictional dominance over other regulators, with investor protection not being the SEC’s primary focus.
Allegations against Binance were not new, as an SEC investigation reportedly began in June 2022. Binance dismissed reports of fund mismanagement as a “conspiracy theory.”