The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against leading cryptocurrency exchange Binance and its CEO Changpeng Zhao, also known as CZ, for allegedly violating federal securities laws. The lawsuit comes after a similar suit was brought by the Commodity Futures Trading Commission (CFTC) against Binance earlier this year.
Binance Faces Dual Legal Action as SEC Joins CFTC in Accusing the Exchange of Regulatory Violations
According to the SEC, Binance, along with its U.S. operating company Binance.US, and CZ, offered unregistered securities in the form of the BNB token and Binance-linked BUSD stablecoin to the general public. The suit also alleges that Binance’s staking service violated securities laws. The SEC further accuses Binance of failing to register as a clearing agency, a broker, and an exchange. The regulatory body claims that Binance allowed the commingling of customer funds and that CZ secretly controlled Binance.US, with a CZ-owned entity inflating Binance.US’s trading volume.
One key allegation in the suit is that Binance claimed it did not serve U.S. customers while surreptitiously assisting high-value U.S. customers to trade on its platform. The SEC contends that Binance and CZ aimed to shield themselves from U.S. regulation, engaging in deceptive practices and conflicts of interest.
The SEC’s lawsuit also states that several other tokens, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Coti (COTI), Algorand (ALGO), Filecoin (FIL), Cosmos (ATOM), Sandbox (AXS), Axie Infinity, and Decentraland (MANA), are classified as securities. You can discover more details in the link below.
The suit highlights Binance’s poor financial controls, alleging that customer funds were diverted and potentially used for personal purposes. It claims that Merit Peak Limited, previously associated with CZ, had access to significant customer funds, while another CZ-controlled entity, Sigma Chain, received substantial funds from BAM Trading.
Catherine Coley, the first CEO of Binance’s U.S. operations, expressed concerns internally about her team’s struggles, and former U.S. CEO Brian Brooks reportedly left the company after realizing he was not in control and that the mission he signed up for was not being pursued.
In response to the lawsuit, Binance released a statement expressing disappointment with the SEC’s decision to file a complaint, emphasizing that the company had cooperated with investigations and worked toward a settlement. Binance also stated that user assets on its platforms, including Binance.US, were secure and pledged to vigorously defend against the allegations.
SEC Chair Gary Gensler stated that the charges against Binance and CZ involve a range of deceptive practices, conflicts of interest, lack of disclosure, and evasive maneuvers to evade the law.
This lawsuit from the SEC adds to the allegations brought by the CFTC in March, accusing Binance and CZ of offering unregistered crypto derivatives products in the United States, which violated federal law. Many of the allegations in the SEC’s suit mirror those in the CFTC’s complaint.
It remains to be seen how the legal proceedings will unfold and what impact they will have on Binance and the broader cryptocurrency industry.