The Securities Regulator Alleges Binance Illegally Operated as Unregistered Securities Exchange in the US
On June 5, the United States Securities and Exchange Commission (SEC) took legal action against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ) by filing a lawsuit in the District Court for the District of Columbia.
The SEC alleges that Binance operated unlawfully as a securities exchange in the United States and failed to register with the regulatory authority. This legal development highlights the ongoing scrutiny and regulatory challenges faced by the cryptocurrency industry.
4.
Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits.
We will issue a response once we see the complaint. Haven't seen it yet. Media gets the info before we do.
🙏
— CZ 🔶 BNB (@cz_binance) June 5, 2023
The United States Securities and Exchange Commission (SEC) has brought forth 13 charges against Binance, a prominent cryptocurrency exchange. These charges include allegations of unregistered offers and sales of BNB (BNB) and BUSD tokens, as well as violations related to products such as Simple Earn, BNB Vault, and the staking program.
The SEC’s lawsuit claims that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. Additionally, it accuses Binance and BAM Trading of not registering Binance.US as an exchange, broker, and clearing agency.
CEO Changpeng Zhao (CZ) is named as a defendant in his capacity as a “controlling person.” This legal action signifies the regulatory scrutiny faced by Binance and highlights the ongoing efforts by authorities to ensure compliance within the cryptocurrency industry.
The SEC alleges that the defendants have profited substantially, accumulating billions of U.S. dollars, while jeopardizing the investments of their clients. The suit contends that the defendants have conducted numerous unregistered offerings and sales of crypto asset securities, as well as other investment schemes. This assertion highlights the potential risks and alleged regulatory violations associated with the defendants’ actions, emphasizing the importance of investor protection and adherence to applicable securities laws.
The SEC further alleges that BAM Trading and BAM Management deceived equity, retail, and institutional investors by making false representations regarding the existence of surveillance and controls to prevent manipulative trading on the Binance.US Platform. However, according to the suit, these purported safeguards were virtually non-existent, suggesting a lack of proper oversight and potentially misleading practices by the defendants.
Also Read This Related: Binance CEO CZ Issues First Response to SEC Litigation
The charges brought against Binance include allegations that the company did not adequately prevent U.S. investors from accessing its Binance.com platform. Additionally, the SEC claims that Binance.US was involved in wash trading, a practice where trades are executed to create an illusion of market activity, through its undisclosed market making trading firm, Sigma Chain, which is owned by CZ. These allegations raise concerns about compliance measures and potential manipulative trading practices within the Binance ecosystem.
In a statement, SEC Chair Gary Gensler commented,
“According to the allegations, Zhao and Binance deceived investors by misrepresenting their risk management protocols, manipulating trading volumes, and deliberately concealing crucial information regarding the platform’s operators, affiliated market maker’s manipulative trading, as well as the custody of investor funds and crypto assets.”
These allegations suggest a pattern of deceptive practices and lack of transparency within Binance, potentially exposing investors to significant risks and undermining the integrity of the platform.
In its lawsuit, the SEC is seeking permanent injunctions to prohibit Binance and CZ from engaging in further activities, as well as disgorgement of unlawfully obtained profits with interest and monetary penalties. The suit asserts that the tokens traded on the Binance exchange qualify as securities.
These tokens include BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI. The SEC’s claims suggest that these tokens should be subject to the regulatory framework applicable to securities, implying potential violations and the need for appropriate remedies.
Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.
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