The U.S. Securities and Exchange Commission (SEC) has filed a federal suit on Monday accusing Binance, the world’s largest cryptocurrency exchange, its CEO Changpeng Zhao, and BAM Trading and BAM Management of providing false information to regulators about their operations. The SEC has levied 13 charges against the defendants in the lawsuit.
According to the regulatory agency, Binance and BAM Trading, under Zhao’s leadership, operated without registering with the SEC. While publicly claiming that BAM Management and BAM Trading independently controlled the operations of the Binance.US platform, behind the scenes, Zhao and Binance were allegedly extensively involved in directing the trading entity’s business and providing crypto-related services to the Binance.US platform, which presents itself as an independent exchange.
Binance, in a post on Monday, stated that it had actively cooperated with the SEC’s investigations and had engaged in discussions to reach a negotiated settlement. However, the SEC chose to pursue litigation instead of continuing the settlement process. Binance.US also tweeted its belief that the SEC’s lawsuit is baseless, calling for action from the crypto industry to challenge the allegations.
According to the SEC’s filing, an internal presentation from August 2019 estimated that Binance’s platform had over 1.47 million customers in the U.S. Among them, approximately 3,500 were high-volume traders referred to as “VIPs,” who generated substantial revenue and liquidity for the platform. The filing also revealed that in December 2018, Binance’s former Chief Compliance Officer, Samuel Lim, stated that they were operating as an unlicensed securities exchange in the U.S.
The charges further include allegations that Binance misled investors regarding its systems for detecting and controlling manipulative trading. The SEC claims that the exchange did not take sufficient measures to prevent U.S.-based investors from accessing its platform. Additionally, the SEC asserts that the cryptocurrency BNB and stablecoin BUSD are securities.
Binance responded to the SEC’s action in a blog post, criticizing the regulatory approach and stating that labeling certain tokens and services as securities exacerbates the challenges faced by the industry. The SEC maintains that Binance and Zhao aimed to evade U.S. regulations through their operations.
Gurbir S. Grewal, the director of the SEC’s enforcement division, stated that the SEC alleges that Zhao and the Binance entities were aware of the regulations but chose to disregard them, putting their customers and investors at risk.
This lawsuit from the SEC follows a previous lawsuit filed by the U.S. Commodity Futures Trading Commission (CFTC) against Binance and Zhao for allegedly violating U.S. rules by offering unregistered futures and options contracts to American traders.