SEC sues Binance, uncovering 13 charges in sweeping lawsuit : NPR

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Binance Co-Founder and CEO Changpeng Zhao, widely known as CZ, speaks during a press conference during Europe’s largest tech conference, the Web Summit, in Lisbon on November 2. 2022. The SEC sued Binance and CZ on Monday, claiming the company misled customers, among other charges. Patricia De Melo Moreira/AFP via Getty Images hide caption

Toggle caption Patricia De Melo Moreira/AFP via Getty Images

Binance Co-Founder and CEO Changpeng Zhao, widely known as CZ, speaks during a press conference during Europe’s largest tech conference, the Web Summit, in Lisbon on November 2. 2022. The SEC sued Binance and CZ on Monday, claiming the company misled customers, among other charges.

Patricia De Melo Moreira/AFP via Getty Images

US regulators have targeted another giant in the crypto world.

The Securities and Exchange Commission has filed 13 charges against Binance, the world’s leading crypto exchange, and its billionaire co-founder and CEO, Changpeng Zhao, widely known as CZ. This is the latest in a series of actions taken against crypto companies.

In a lawsuit filed in the U.S. District Court for the District of Columbia, the SEC accused Zhao and his company of misleading investors about Binance’s ability to detect market manipulation as well as misappropriating client funds and sent some of that money to a company controlled by CZ, among other charges.

The SEC also accused Binance of operating an unregistered trading platform in the US and allowing US customers to trade crypto on an exchange that is supposedly off limits to US investors.

“Through thirteen counts, we allege that the Zhao and Binance Entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated circumvention of the law,” said SEC Chairman Gary Gensler in a statement. “They attempted to evade US securities laws by announcing bogus controls that they ignored behind the scenes so they could keep high-value US clients on their platforms.”

Regulators go after crypto companies

The SEC actions are the latest in a series of actions by regulators against crypto companies.

The biggest target so far has been FTX, a company that has spectacularly collapsed and faces a slew of criminal charges that threatens to send its founder and former CEO, Sam Bankman-Fried, into prison for more than 100 years.

Gensler himself has often compared the world of crypto to the “Wild West”.

Binance’s market share has grown significantly since FTX’s shutdown, and in recent months it has been the focus of regulators and law enforcement in the US and around the world.

Most recently, in March, the Commodity Futures Trading Commission charged the company with violating the Commodities Exchange Act and several CFTC regulations.

Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before the Senate Banking Committee on Capitol Hill, Washington DC on September 15, 2022. Gensler compared the crypto industry to the “Wild West”. Kevin Dietsch/Getty Images hide caption

Toggle caption Kevin Dietsch/Getty Images

Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before the Senate Banking Committee on Capitol Hill, Washington DC on September 15, 2022. Gensler compared the crypto industry to the “Wild West”.

Kevin Dietsch/Getty Images Binance accused of not properly registering US exchange

Like other major crypto companies, Binance operates products suitable for different countries and regulatory regimes.

Since 2019, Binance has operated a separate exchange for customers in the United States, known as Binance.US, to comply with US laws. As such, US-based investors are not expected to use Binance’s global platform, known as Binance.com.

But in today’s filing, the SEC says the company and its chief executive “subverted their own controls to covertly allow high-value U.S. clients” to trade on its international exchange.

Two subsidiaries, BAM Trading and BAM Management, were supposed to monitor US operations independently, but according to the SEC, this firewall has been more permeable than the company has publicly implied.

“Zhao and Binance secretly controlled the operations of the Binance.US platform behind the scenes,” the agency said in a statement.

In speeches and congressional testimony, Gensler called on crypto firms to register with the SEC. In today’s filing, the SEC claims that Binance failed to do so.

The defendants “chose not to register, so they can escape essential regulatory oversight designed to protect investors and markets,” the SEC said in its lawsuit.

The agency points to a message Binance’s Chief Compliance Officer sent to a colleague in 2018:

“[w]We operate as a fking unlicensed stock exchange in the United States bro,” he wrote.

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