The US Securities and Exchange Commission (SEC) has filed a complaint in federal court accusing Binance Holdings Ltd, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao of violating securities regulations, mishandling customer funds, misleading investors and regulators. The 136-page complaint outlines 13 charges of an "extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law," according to SEC chair Gary Gensler.
Binance responded to the complaint, calling it "disappointing" and stating that it had engaged with the SEC in "good-faith negotiations" to settle the matter. The exchange also argued that the SEC had failed to provide clarity on rules for digital assets. "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," said Binance.
The SEC complaint also alleged that two Binance-linked tokens, BNB and BUSD, were securities that the firm improperly offered and sold. The regulator claimed that Binance and its US affiliate functioned as an exchange, broker-dealer, and clearing agency without registering with the agency. The complaint further asserted that Zhao and Binance secretly controlled the Binance.US platform's operations behind the scenes while publicly claiming that the platform was created as a separate, independent trading platform for US investors.
This legal action follows a lawsuit from the US derivatives watchdog in March of this year, which alleged that Binance and Zhao routinely broke its rules. The SEC complaint also echoes the derivative regulator's earlier claim that Binance worked to evade US regulations.
In addition to securities violations, the SEC alleged mismanagement of customer funds by Binance, claiming that billions of dollars of customer funds were moved and mixed improperly. Also, the regulator alleged that from at least September 2019 until June 2022, Sigma Chain, a trading firm owned and controlled by Zhao, used wash trading to artificially inflate Binance.US's trading volume. The SEC further accused Binance of misleading investors about controls in place at the US entity to prevent manipulative trading.
The implications of this legal action could be wide-ranging, as the SEC claimed that certain tokens traded on Binance.com and Binance.US, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, were offered and sold as securities. The legal action is just the latest in a growing series of regulatory actions taken against cryptocurrency exchanges and firms in recent years.