SEC files lawsuit against Binance in US court over unregistered securities activities

On June 5, the District Court for the District of Columbia witnessed a lawsuit filed by the United States Securities and Exchange Commission (SEC) against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ).

The SEC has brought forth a total of 13 charges against Binance, encompassing activities such as unregistered offers and sales of the BNB and Binance USD tokens, the Simple Earn and BNB Vault products, as well as its staking program. Furthermore, the lawsuit alleges that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. Additionally, it claims that both Binance and BAM Trading, the legal entity of Binance.US, neglected to register Binance.US as an exchange, broker, and clearing agency. CZ, in his capacity as a "controlling person," has also been named as a defendant in the lawsuit.

As per the lawsuit:

"The defendants have accumulated billions of U.S. dollars, benefiting themselves at the expense of jeopardizing investors' assets. They have conducted numerous unauthorized transactions involving crypto asset securities and other investment schemes."

The statement further states, "BAM Trading and BAM Management, the defendants in question, have been found guilty of deceiving equity, retail, and institutional investors regarding the supposed surveillance and safeguards against manipulative trading on the Binance.US Platform, which, in reality, were virtually non-existent."

Among the accusations supporting these charges are allegations that Binance failed to restrict U.S. investors from accessing Binance.com, and that Binance.US partook in wash trading through its undisclosed primary "market making" trading firm, Sigma Chain, which is owned by CZ.

Moreover, the lawsuit contends that funds from Binance and Binance.US were mingled in an account controlled by Merit Peak Limited, an entity associated with CZ. These allegations mirror the complaints previously filed by the Commodity Futures Trading Commission on March 27. CZ refuted these charges in a detailed blog post.

Gary Gensler, the Chair of the SEC, expressed in a statement, "As stated, Zhao and Binance misled investors regarding their risk management measures, manipulated trading volumes, and actively concealed information regarding the platform's operators, the manipulative trading activities of its affiliated market maker, and even the custody of investor funds and crypto assets."

The SEC is seeking a permanent injunction on Binance and CZ, prohibiting them from engaging in further activities, as well as the disgorgement of unlawfully obtained profits with interest and financial penalties.

The lawsuit persisted, alleging that the tokens exchanged on Binance were categorized as securities. These tokens included BNB, BUSD, Solana, Cardano, Polygon, Filecoin, Cosmos, The Sandbox, Decentraland, Algorand, Axie Infinity, and COTI.

Both Binance and Binance.US individually responded to the lawsuit. Binance.US took to Twitter, expressing that the SEC's accusations were yet another instance of regulatory actions based on enforcement rather than clear guidelines. They firmly stated that the lawsuit was groundless, and they were fully committed to mounting a strong defense against it.

In a recent blog post featured on Binance.com, the company stated:

"Right from the beginning, we have actively collaborated with the SEC during their investigations and diligently addressed their inquiries and concerns. […] Although we take the SEC's allegations seriously, we firmly believe that they should not warrant an enforcement action, particularly on an urgent basis."

Binance.com further stated, "Any claims suggesting that user assets on the Binance.US platform were ever in jeopardy are completely unfounded. It appears that the SEC's actions in this instance are driven by a desire to hastily establish jurisdictional authority, disregarding the interests of investors."

It is worth noting that allegations against Binance are not unprecedented. An SEC investigation into Binance was reportedly initiated in June 2022. Binance has dismissed reports of fund mismanagement as baseless "conspiracy theories."