SEC Sues Binance for Mishandling Client Funds & Lying to Regulators

The Securities and Exchange Commission (SEC) has filed a lawsuit against Binance and its CEO, Changpeng Zhao. They stand accused of participating in “an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”

Key Takeaways

  • The US regulator alleges Binance enticed US customers to its unregulated global exchange, commingled “billions of dollars” in client assets, and misled investors and regulators about its surveillance controls
  • This is the most severe action taken against Binance by the SEC and comes just months after the CFTC levelled similar accusations against the world’s largest crypto exchange
  • Zhao took to Twitter to dispute the claims while Binance issued a formal statement to “defend our platform vigorously”
  • In the wake of the announcement, the price of Bitcoin fell 6.5% to its lowest value since March while the price of Binance Coin sank 13%

Deceit & Deception

At the crux of the legal filings is that Binance, under the direction of its CEO and founder, Changpeng Zhao, attempted to circumvent regulations designed to protect US investors.

The country’s chief financial regulator alleges that Binance took billions of dollars in customer funds and covertly sent them to another entity, Merit Peak Limited, which is also controlled by Zhao.

The SEC also claim that Binance misled investors and the authorities about its ability to control manipulative trading and its efforts to prevent US clients from using its international platform.

US investors were supposed to only have access to Binance.US, however, the crypto exchange sought to circumvent its own controls to allow high-net-worth clients to continue trading on its unregulated global platform.

In essence, Binance.US was a shell company that was set up to keep the regulators happy, while management diverted client funds to other companies that were also owned by Zhao.

Another blow to the exchange which dominates 70% of the market with an average daily trading volume of $65 billion, is the claim that it artificially pushed up the price of digital assets. Also known as ‘wash trading’, the SEC alleges that Binance traded with itself to inflate the prices of popular cryptocurrencies.

Binance Hits Back

The world’s leading cryptocurrency exchange was quick to issue a formal announcement in an effort to reassure its customers and defend its reputation.

The firm’s blog read: “Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong.” It went on to say: “We are prepared to fight it to the full extent of the law.”

Zhao also took to social media to defend Binance: “Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits.” He added: “We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.”

The Battle For Crypto Control

US regulators have zeroed in on the digital asset industry in recent months, with over 30 enforcements since 2022. And now they have the world’s largest crypto exchange in their crosshairs.

This case has the potential to reshape who holds the power in the crypto landscape as Binance looks to be following in the footsteps of the now infamous FTX.

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