Commingling of User Funds and Evasion of Controls – The Securities and Exchange Commission (SEC) has filed 13 charges against Binance and CEO Changpeng Zhao.
The legal action accuses them of violating U.S. securities laws. Binance, known as the world’s largest crypto exchange, is at the center of the allegations. The SEC has alleged that the exchange and Zhao were involved in various illicit activities. These activities are outlined in the complaint filed by the SEC. The allegations against them are extensive and detailed.
Firstly, the SEC claims that Binance and Zhao mixed user funds totaling billions of dollars and sent them to a European company controlled by Zhao.
Additionally, the regulator argues that Binance purposely circumvented its own controls to allow high net worth U.S. investors to continue trading on its unregulated international exchange.
Binance : Alleged Efforts to Entice U.S. Customers and Subvert Regulations
A senior executive openly acknowledged that Binance operated as an unlicensed securities exchange in the U.S., significantly bolstering the SEC’s allegations against the company.
The SEC complaint further discloses that the exchange established Binance US as a protective measure, aiming to shield both the main company and CEO Changpeng Zhao. This move allowed them to conceal activities, impede law enforcement efforts, and safeguard Binance’s operations.
Testimonies of Former Binance US CEOs Catherine Coley and Brian Brooks
Further, the concerns expressed by former Binance US CEOs Catherine Coley and Brian Brooks, who testified before federal regulators, shed light on Zhao’s overwhelming control within the organization. Their testimonies provided crucial insights into the internal dynamics and decision-making processes.
Additionally, the SEC highlights that Binance amassed a substantial revenue of $11.6 billion, primarily derived from transaction fees, during the period from June 2018 to July 2021. Despite being aware of federal laws that explicitly prohibit the unregistered offer and sale of securities, Binance actively enticed U.S. customers, disregarding these legal restrictions.
Financial Impact and Performative Compliance Measures
Zhao orchestrated an evasion plan using VPNs to conceal customer location and manipulate compliance documents. Further, Binance and Zhao used market-making companies to artificially inflate prices through wash trading.
Sigma Chain allegedly accumulated $190 million for Zhao, possibly for purchasing a yacht. Zhao dismissed charges on Twitter, while Binance expressed disappointment and highlighted cooperation with investigations.
Moreover, the SEC’s complaint exposes a blatant disregard for federal law, detailing Binance’s ownership structure and Zhao’s control over associated entities. SEC Chair Gensler described the alleged actions as an extensive web of deception, conflicts, and evasion.
Implications for the Cryptocurrency Industry and Future Regulatory Actions
The SEC’s lawsuit against Binance and CEO Changpeng Zhao exposes several serious allegations. These include the commingling of user funds, evasion of controls, enticement of U.S. customers, the manipulation of compliance measures, and engagement in deceptive trading practices.
Lastly, the case will likely have significant implications for the cryptocurrency industry and regulatory oversight going forward.
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