SEC sues Binance, says it evaded US law with “extensive web of deception”

Nishita Gupta
Nishita Gupta June 8, 2023
Updated 2023/06/08 at 5:53 PM

Binance accuses SEC of overreach

Defendants also include related companies BAM Trading Services and BAM Management US Holdings Inc. The SEC lawsuit has 13 charges alleging violations of the Securities Act and Exchange Act. The complaint is similar to one filed in March against Binance and Zhao by the US Commodity Futures Trading Commission (CFTC). As we previously wrote, the CFTC lawsuit seeks disgorgement, civil monetary penalties, and permanent trading and registration bans.

Binance issued a response to the SEC on Monday. It said there is “zero justification” for the lawsuit, that the SEC is trying “to claim jurisdictional ground from other regulators,” and that “any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong.”

“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary,” Binance said. Binance further accused the SEC of “overreach” and said that “because Binance is not a US exchange, the SEC’s actions are limited in reach.”

Binance is the world’s largest crypto asset trading platform, with a trading volume of $9.58 trillion in 2021, the SEC lawsuit said. Binance is said to have earned at least $11.6 billion in revenue from June 2018 to July 2021, mostly from transaction fees.

Binance’s own crypto coin offering, BNB, was down over 10 per cent in trading following today’s SEC lawsuit.

SEC: Binance chose to evade US law

The lawsuit alleged that under Zhao’s control, Binance and affiliated entities “have unlawfully offered three essential securities market functions—exchange, broker-dealer, and clearing agency—on the Binance Platforms without registering with the SEC. Acutely aware that US law requires registration for these functions, Defendants nevertheless chose not to register, so they could evade the critical regulatory oversight designed to protect investors and markets.”

Binance claimed to the public that didn’t serve US people “while simultaneously concealing their efforts to ensure that the most valuable US customers continued trading on the platform,” the SEC said, continuing:

When the Binance.US Platform launched in 2019, Binance announced that it was implementing controls to block US customers from the Platform. In reality, Binance did the opposite. Zhao directed Binance to assist certain high-value US customers in circumventing those controls and to do so surreptitiously because—as Zhao himself acknowledged—Binance did not want to “be held accountable” for these actions. As the Binance CCO explained, “[o]n the surface we cannot be seen to have US users[,] but in reality, we should get them through other creative means.” Indeed, Zhao’s stated “goal” was “to reduce the losses to ourselves, and at the same time to make the US regulatory authorities not trouble us.”

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