Binance accused in SEC lawsuit of mishandling funds, violating securities laws
Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao are accused of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws in a lawsuit by the Securities and Exchange Commission.
Filed in the U.S. District Court for the District of Columbia, the SEC lawsuit on Monday lists 13 charges against the firm, which is accused of commingling and diverting customer assets to an entity Zhao owned called Sigma Chain.
Binance is a Cayman Islands limited liability company founded by Zhao. The charges echo practices uncovered after the collapse of the second-largest cryptocurrency exchange, FTX, last year.
The lawsuit lays out the extent to which the firm‘s owners knew of the alleged legal violations: “Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, ‘we are operating as a f— unlicensed securities exchange in the USA bro.’â€
SEC Chair Gary Gensler in a written statement said that Zhao and Binance “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.â€
The operator of the world’s largest crypto exchange is weighing the retreat amid intense regulatory scrutiny from authorities.
“The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,†Gensler said.
In a social media post, Binance said that it has been cooperating with the SEC’s investigation but that the agency “chose to act unilaterally and litigate.â€
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously,†the company said in a Twitter post. “Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.â€
The lawsuit comes roughly eight months after the collapse of FTX, which was also accused of commingling customers’ funds and investing the proceeds in high-risk investments that customers were unaware they were participating in.
U.S. prosecutors and the SEC charged FTX’s founder, Sam Bankman-Fried, with a host of money laundering, fraud and securities fraud charges in December. His criminal trial is likely to start in the fall.
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“The new complaint from the SEC against Binance is a laundry list of charges laying out exactly the same claims that many in the Bitcoin and crypto communities have made against Changpeng Zhao and his companies for many years. These practices of Binance have essentially been open secrets, so no one who operates in the space will be surprised by any of the charges,†said Cory Klippsten, chief executive of Swan Bitcoin, a bitcoin financial services company.
U.S. regulators have gone after Binance before.
In March, the Commodity Futures Trading Commission filed an enforcement action against Binance and Zhao in the U.S. District Court for the Northern District of Illinois, charging them with numerous CFTC violations.
The complaint also charges Samuel Lim, Binance’s former chief compliance officer, with aiding and abetting Binance’s violations.
AP writer Ken Sweet contributed to this report.
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