Crypto giant Binance and CEO Zhao knew they broke the law, SEC says

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Federal regulators have accused Binance, the world’s largest cryptocurrency exchange, and its chief executive of violating securities laws and making false statements to investors, the latest round of Washington’s crackdown on the cryptocurrency industry and its key players.

The Securities and Exchange Commission outlined 13 civil charges in the lawsuit filed Monday. Regulators accuse Binance of illegally engaging in unregistered offers and sales of crypto assets and failing to follow basic rules designed to prevent fraudulent and manipulative acts such as personal transactions.

Defendants enriched themselves with billions of US dollars while putting investors’ assets at significant risk, SEC said in complaint

The SEC is seeking restitution for the victims. The agency also wants to permanently ban CEO Changpeng Zhao from acting as an officer or director of any issuer whose securities are registered with the commission.

The length of the complaint, the number of charges and the incendiary nature of the evidence are all reminders that the SEC’s regulatory assault on crypto continues to grow exponentially, said John Reed Stark, former SEC bureau chief. for Internet law enforcement.

These are very serious allegations, he said. These are not technical regulatory parking tickets. For me, it’s a systemic and well-orchestrated scheme.

Since the beginning of the year, the SEC has targeted Kraken, Genesis and Gemini Trust. Meanwhile, Coinbase revealed in March that it had been warned by the regulator that it may be breaking securities laws, signaling that a lawsuit could be imminent.

In a statement on the company’s blog, Binance said it intends to defend itself vigorously, adding that the SEC’s actions undermine the Americas’ role as a global hub for innovation and commerce. financial leadership.

Binance argues that the SEC has taken an overly aggressive regulatory stance, using the blunt weapons of enforcement and litigation that are not well suited to the demands of the complex technology in which it operates. Binance said the commission should have done more to engage with the company. Rather, the SEC’s real intention appears to be to grab headlines, Binance said.

The cryptocurrency market wobbled after the SEC filing. Bitcoin fell more than 5% on Monday to below $26,000, a level not seen since March.

Financial regulators allege the company hatched a plan to evade judicial scrutiny while continuing to profit from U.S. investors. The company and Zhao understood they were violating several laws, the commission alleged, detailing what financial regulators described as a ploy to surreptitiously evade law enforcement.

To support its case, the commission in its complaint repeatedly cited Binances’ internal communications. For example, the company’s chief compliance officer admitted in 2018 that, we don’t want [Binance].com to ever be regulated. Later that year, the same executive told another compliance officer, “We operate as an unlicensed securities exchange in the United States.

Zhao is a prominent figure in the crypto world. Last year, his rivalry with now-disgraced FTX founder Sam Bankman-Fried came to a head when Zhao questioned the stability of FTX, which helped fuel a company token sale. and sparked a frenzy that led to the collapse of FTX and criminal charges. against Bankman-Fried.

John Ghose, a former federal cybercrime prosecutor who specializes in crypto-related crimes, said there are some interesting parallels between this case and the SEC’s lawsuit against Bankman-Fried, including allegations of mis-mixing. client and company funds and misrepresentation on compliance. controls that were in fact non-existent. One question is whether there is common evidence and testimony between the SEC’s investigation of SBF and Binance/Zhao, and whether the case against SBF helps build a case against Binance, he said. .

The lawsuit follows reviews by federal prosecutors investigating US hedge funds’ transactions with Binance as part of a long-running investigation into potential violations of money laundering rules.

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