Cryptocurrencies and shares in crypto and blockchain-related companies plunged on June 5, after the US securities regulator sued cryptocurrency exchange Binance.
The U.S. Securities and Exchange Commission (SEC) has sued Binance and CEO Changpeng Zhao (CZ) for secretly controlling Binance.US as part of a “scam website” to evade U.S. law, among other charges.
"Fraud, circumvention"
The SEC’s lawsuit, filed in federal court in Washington, DC, lists 13 allegations against Binance, Mr. Zhao and the supposedly independent U.S. exchange operator.
The SEC accused Binance of inflating trading volumes on its platform, diverting customer funds and failing to restrict US customers from its platform, while misleading investors about market oversight controls.
The SEC also claims that Binance and its founder Changpeng Zhao — one of the most prominent tycoons in the cryptocurrency industry — secretly controlled customer assets, allowing them to mix and redirect investors’ funds at will.
Binance created separate U.S. entities as part of an elaborate scheme to evade U.S. federal securities laws, the SEC alleges while citing a series of investigations into the exchange announced this year and in 2022.
The US Securities and Exchange Commission (SEC) has sued Binance and its CEO in federal court in Washington DC on 13 charges. Photo: CNBC
“We allege that Mr. Zhao and Binance entities engaged in a vast web of fraud, conflicts of interest, lack of transparency, and calculated evasion of the law,” SEC Chairman Gary Gensler said in a statement.
The SEC lawsuit is just one of the legal issues Binance has faced in recent times.
In March, the company was sued by the U.S. Commodity Futures Trading Commission (CFTC) for operating an illegal exchange with fake compliance programs. Mr. Zhao said the CFTC was not telling the whole truth.
Binance is also being investigated by the US Department of Justice for suspected money laundering and sanctions violations.
Prior to the SEC lawsuit, Reuters reported that Binance had taken control of Binance.US' bank accounts despite claiming that the facility operated independently, unrelated to Binance China.
According to Reuters, a senior Binance executive was the primary operator of five bank accounts belonging to BAM Trading, the operator of Binance.US, including one with funds from U.S. customers.
“Good faith discussion”
“We will vigorously defend our platform,” Binance said in a blog post, adding that “as Binance is not a US exchange, the SEC’s actions will be limited in their reach.”
“All user assets on Binance and Binance affiliated platforms, including Binance.US, are safe and secure,” Binance said in a blog post.
Binance said it has engaged in “good faith discussions” with the SEC and “actively responded to their questions and addressed their concerns,” including trying to reach a negotiated settlement.
“With today’s complaint, the SEC has abandoned that process. Instead, they have chosen to act unilaterally and litigate. We are not comfortable with that choice,” Binance said.
Binance is not based in the US, so the SEC's access to the exchange will be limited. Photo: Coin Desk
Bitcoin, the world's largest cryptocurrency, fell more than 6% on June 5, with losses deepening as the day went on. As of the afternoon of June 5, the cryptocurrency had fallen to around $25,500 - its lowest level in months. Bitcoin has fallen nearly 14% from its recent high about a month ago. Binance's cryptocurrency (BNB) also fell 9.72%.
Ethereum, the second-largest cryptocurrency by market capitalization, also took a hit following news of the lawsuit. Ethereum fell more than 5% to around $1,800/ETH.
However, Binance was the biggest loser after the lawsuit news. Binance's coin (BNB) fell nearly 10% after investors withdrew from Binance. According to coinglass.com, about 9,802 BTC, worth $249.36 million, was transferred out of Binance's bitcoin reserves.
According to market participants, the SEC's allegations could be difficult for Binance, affecting the cryptocurrency industry where Binance is dominant. In 2022, Binance processed about $65 billion worth of transactions per day.
Binance was founded in Shanghai in 2017 and is headquartered in the Cayman Islands. Mr. Zhao is a Canadian citizen who was born and raised in China until he was 12. The exchange says it has no headquarters. Mr. Zhao has said that the company's headquarters are wherever he is at any given time .
Nguyen Tuyet (According to Reuters, Washington Examiner, Channel News Asia)
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