US SEC accuses Binance and CEO of evading securities laws

The world’s largest crypto exchange, Binance, and its CEO and founder Changpeng Zhao were sued by the US Securities and Exchange Commission (SEC) on Monday for failing to restrict US customers from its platform and misleading investors about its market surveillance controls, as well as for operating an unregistered securities exchange.

The SEC’s complaint, filed in federal court in Washington, DC, also alleged that Binance and Zhao secretly control customers’ assets, allowing them to commingle and divert customer funds, and that Binance created separate US entities “as part of an elaborate scheme to evade US federal securities laws”.

Binance did not immediately respond to a request for comment on the charges. In a tweet, Zhao said the company would issue a response once it had viewed the complaint.

The move is the latest in a series of legal woes for Binance, which was also sued by the US Commodity Futures Trading Commission (CFTC) in March for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance programme, with Zhao calling those charges “disappointing” and an “incomplete recitation of facts”.

Binance is also under investigation by the justice department for suspected money laundering and sanctions violations, according to people familiar with the probe.

The world’s biggest crypto exchange, Binance was founded in Shanghai in 2017 by Zhao, a Canadian citizen born and raised until the age of 12 in China.

While its holding company is based in the Cayman Islands, Binance says it does not have a headquarters and has declined to state the location of its main Binance.com exchange.

Binance’s global trading platform, Binance.com dominates the crypto trading landscape, last year processing trades worth about $65bn a day with up to 70% of the market.

The firm has processed at least $10bn in payments for criminals and companies seeking to evade US sanctions, reports have said.

On May 23 it was reported that Binance commingled its customers’ funds with its corporate revenues in Silvergate Bank account belonging to trading firm Merit Peak, in breach of US financial rules that require client money to be kept separate.

Binance denied mixing customer deposits and company funds, saying that users who sent money to the account were not making deposits, but rather were buying Binance’s bespoke dollar-linked crypto token.

Reuters