SEC claims Binance sought to evade U.S. regulation.
The Securities and Exchange Commission has joined the U.S. government’s assault on Binance, claiming the world’s largest cryptocurrency exchange sought to “evade the critical regulatory oversight designed to protect investors and markets.”
A complaint, filed in the federal court for the District of Columbia on Monday, said the company has shown “blatant disregard of the federal securities laws” and that Binance and Changpeng Zhao, its CEO, have “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”
The 13-count complaint asks for a jury trial and seeks to have Binance “disgorge all ill-gotten gains” and pay civil penalties; it did not specify amounts. It also seeks to have Zhao banned from acting as an officer or director of any company with securities registered with the SEC or that are required to report information to it.
It is not clear whether cryptocurrencies are securities under U.S. law, but the SEC has taken the position that most of them are.
Binance said in a blog post it was “disheartened” by the action and intends to “defend our platform vigorously.” The exchange added that it has been working to address SEC concerns but that the agency has “abandoned that process and instead chose to act unilaterally and litigate.”
In April, Binance withdrew a $1 billion offer to purchase assets from the defunct Voyager Digital Holdings brokerage, citing a “hostile and uncertain regulatory climate in the United States.”
Before the SEC suit was revealed, Binance posted an announcement on Twitter that Richard Teng has been named its head of regional markets. The Tweet linked to a Bloomberg article that specified the position covers all regional markets outside the U.S.
The SEC action on Monday follows a March 28 complaint from the Commodities Futures Trading Commission that similarly the company failed to register as a futures commodity merchant. Earlier that month, three U.S. senators wrote to Binance, seeking information about its finances and saying that the exchange’s “apparent attempts” at evading U.S. laws regarding securities and money laundering “cast serious doubt on the stability and legitimacy of Binance.”
The new SEC suit claims that starting in or around 2018 Binance “designed and implemented a multi-step plan to surreptitiously evade U.S. laws.”
Binance’s crypto currency, the bnb coin, fell about 5% in hour after the suit was revealed, to $284.06, according to Coingecko.com. It is down almost 10% over the past week and about 16% since April.
Forbes – Image of BNB price according to CoinGecko data
One possible ramification of the SEC charges, especially in light of the earlier CFTC action, is that investors will shun BinanceUS, the American subsidiary, with rival exchanges Coinbase and Kraken potential beneficiaries, according to Javier Paz, director of data and analytics for Forbes Digital Assets. Binance has come under increasing scrutiny in the wake of the FTX failure in November.
A Reuters report earlier Monday said that a Binance executive controlled accounts of the exchange’s U.S. subsidiary in 2019 and 2020, contrary to representations that the American unit operated independently.
In February, a Forbes investigation found that Binance used $1.8 billion of collateral backing stablecoins owned by its customers without informing them.
