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Binance Faces SEC Lawsuit over Alleged Securities Law Violations

The world's largest crypto exchange, Binance, and its CEO, Changpeng Zhao, are under legal scrutiny with a fresh lawsuit from the U.S. Securities and Exchange Commission (SEC).

Changpeng Zhao
Changpeng Zhao

SEC Accuses Binance and Zhao of Operating a 'Web of Deception

On Monday, the U.S. Securities and Exchange Commission (SEC) accused Binance and its CEO, Changpeng Zhao, of engaging in deceptive practices. The SEC alleges that the defendants artificially inflated trading volumes and misappropriated customer assets. The lawsuit also accuses Binance and Zhao of misleading investors about their market surveillance controls and operating an unregistered securities exchange.

Binance Charged with Violating U.S. Securities Laws

According to the SEC's complaint in a federal court in Washington, D.C., Binance and Zhao have been operating a complicated scheme to evade U.S. federal securities laws. The agency alleges they secretly control customers' assets, allowing them to mix and divert customer funds. Further, Binance reportedly set up separate U.S. entities as part of this strategy.

Sigma Chain, Owned by Zhao, Accused of Wash Trading

The SEC's complaint details allegations against Sigma Chain, a trading firm Zhao owns. The firm allegedly engaged in wash trading, which artificially inflated the trading volume of crypto asset securities on the Binance.US Platform from September 2019 until June 2022.

Logos of SEC and Binance
Logos of SEC and Binance

Following the news of the lawsuit, Binance's cryptocurrency BNB, the world's fourth largest by market size, suffered a more than 5% decline. This lawsuit is the latest in a string of legal challenges for Binance, which was also sued by the U.S. Commodity Futures Trading Commission (CFTC) in March on similar charges. Additionally, Binance is under investigation by the Justice Department over suspected money laundering and sanctions violations.

Controversy Surrounds Binance's Operations and Alleged Misuse of Funds

Founded in Shanghai in 2017 by CEO Changpeng Zhao, Binance has consistently dominated the crypto trading landscape. However, its operations have raised eyebrows, especially concerning its base location and handling of funds. While Binance states it doesn't have a headquarters, it has come under scrutiny for commingling customer funds with corporate revenues in a Silvergate Bank account - a potential violation of U.S. financial rules. Binance refutes these allegations, insisting the funds were for purchasing Binance's bespoke dollar-linked crypto token.