Crypto trading giant Binance charged with mishandling funds and deceiving federal regulators

05 June 2023

The United States Securities and Exchange Commission on Monday filed thirteen charges against Binance, the largest cryptocurrency exchange in the world, and its founder Changpeng Zhao.

The SEC stated in a press release that it "charged Binance Holdings Ltd. ('Binance'), which operates the largest crypto asset trading platform in the world, Binance.com; U.S.-based affiliate, BAM Trading Services Inc. ('BAM Trading'), which, together with Binance, operates the crypto asset trading platform, Binance.US; and their founder, Changpeng Zhao, with a variety of securities law violations. Among other things, the SEC alleges that, while Zhao and Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform. Further, the SEC alleges that, while Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform's operations behind the scenes."

The agency "also alleges that Zhao and Binance exercise control of the platforms' customers' assets, permitting them to commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain. The SEC's complaint further alleges that BAM Trading and BAM Management US Holdings, Inc. ('BAM Management') misled investors about non-existent trading controls over the Binance.US platform, while Sigma Chain engaged in manipulative trading that artificially inflated the platform's trading volume. Further, the Complaint alleges that the defendants concealed the fact that it was commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, that is also owned by Zhao."

Zhao and Binance "enriched themselves by billions of U.S. dollars while placing investors' assets at significant risk," the SEC wrote in its 136-page civil complaint, The New York Timesreported.

"The charges were the latest actions by U.S. regulators and prosecutors to rein in the Wild West of crypto trading and force major players in the space to come into compliance with U.S. laws," the paper explained. "Sam Bankman-Fried, the founder of FTX, which had been a big crypto trading rival of Binance's until it filed for bankruptcy in November, faces an October trial for fraud and other charges. In recent months, the S.E.C. has also levied fines and other penalties against crypto lending firms."

The Timesnoted that the SEC "has taken the position that most crypto tokens issued by exchanges like Binance and FTX should be treated as securities under federal law."

The New York Times' report continues at this link (subscription required).

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