The US Securities and Exchange Commission (SEC) filed a lawsuit Monday against Binance and its founder and CEO, Changpeng Zhao, for alleged violations of federal securities laws. In 2023, SEC chairman Gary Gensler went after 4 exchanges (including Binance) and multiple projects. Here is a timeline of all these events…
What happened between the SEC and the cryptocurrency industry
In recent years, the SEC has intensified its regulatory efforts in the crypto market. After the legal action against Ripple and Coinbase, Binance also found itself in legal difficulties. The latest lawsuit against Binance resulted in the reclassification of 10 additional assets as securities. In March 2023, the Commodity Futures Trading Commission (CFTC) filed a complaint against Binance and its CEO, Changpeng Zhao, in a federal court in Chicago. The complaint alleges that Binance offers crypto futures and derivatives to US residents and does not register these offerings with the CFTC. The lawsuit also accuses Binance’s former chief compliance officer, Samuel Lim, of aiding and abetting the company’s violations of US law.
On the other hand, Binance was also under scrutiny for moving approximately $1.8 billion worth of assets to hedge funds between August and December 2022 without notifying customers. Despite previously telling customers that the tokens are 100% backed, this move has raised concerns about transparency and trust. Then, on June 5, the SEC filed 13 charges accusing Binance of a series of charges from the past.
What did the SEC say?
The SEC’s lawsuit alleges that Binance and its founder, Changpeng Zhao, misused clients’ funds. According to the SEC, the funds were used internally by Market makers “owned and controlled” by CZ. This enabled manipulative trading on the Binance US platform. This has also diverted user funds to a CZ-owned entity called Sigma Chain, which engages in “manipulative trading” to inflate trading volume on the crypto exchange. According to the case, here’s what happened:
- Binance and Binance.US have offered unregistered securities such as BNB token and BUSD stablecoin to the public.
- Binance and BAM Trading (the operating company of Binance.US) are accused of failing to register as a trading institution, broker and exchange.
- Binance allegedly allows US customers to transact on its platform, including helping high-value customers circumvent controls.
- Binance and Zhao claimed the company’s US subsidiary was independent, but claimed they controlled it behind the scenes.
- The SEC also claims that Binance’s staking service violates securities laws.
What does Binance CEO CZ say?
In response, Binance issued an official response claiming that the SEC “aims to unilaterally define the crypto market structure.” Zhao dismissed the allegations, calling the lawsuit “unfair” and one of the SEC’s “misguided actions” targeting crypto. Changpeng “CZ” Zhao, CEO of Binance, also retweeted a post highlighting that the SEC is trading more against long-running crypto entities than it does against the now-defunct centralized exchange FTX. CZ says they are ready to tackle the SEC “to the extent permitted by law” and calls for “to be strong together”.
Binance also vehemently denies the SEC’s allegations, calling the case unfounded and plans to vigorously defend itself. They argue that the SEC’s actions are aimed at harming the industry and hindering innovation. They emphasize that Congress must establish a viable regulatory framework for cryptoassets. It was also announced that Richard Teng will take over as the CEO of Binance in Regional Markets, thus replacing CZ.
What do other market players say?
“Binance has known for years that it has violated CFTC rules and has been actively working to both keep money flowing and avoid compliance,” CFTC Chairman Rostin Behnam said in a statement. This should be a warning to everyone in the crypto-asset world that the CFTC will not tolerate deliberate evasion of US law.” said. Shares of Coinbase also tumbled more than 10%.
The SEC’s investigation into 10 crypto assets is absolutely damaging. But it’s worth nothing if the largest instance of multiple cryptocurrencies being labeled as securities occurred in early February. This resulted in 16 crypto assets being affected, including Terra Luna Classic (LUNC), Terra Classic USD (USTC), and Mirror Protocol (MIR). In addition, it has around 13 Mirrored Assets designed to copy the price movements of stocks like Apple and Tesla. [mAssets] classified as securities.
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