Binance, the world’s largest cryptocurrency exchange, along with its founder and CEO Changpeng Zhao (commonly known as CZ), face a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). The accusations revolve around the violation of federal securities laws, misleading investors, and the operation of an unregistered securities exchange.
SEC Allegations Against Binance
According to the SEC, Binance and CZ have offered unregistered securities to the public, namely BNB tokens and Binance-linked BUSD stablecoin. Additionally, Binance’s staking service is also said to infringe on securities laws. The lawsuit claims that Binance, Binance.US, and BAM Trading, the operating company for Binance.US, failed to register as a clearing agency, broker, and exchange. The SEC contends that Binance permitted the mixing of customer funds, with CZ exerting undisclosed control over Binance.US, and an entity owned by CZ artificially inflating Binance.US’s trading volume.
Alleged Evasion of U.S. Regulations
The SEC’s charges outline how Binance and CZ claimed that the Binance.com platform did not serve U.S. persons while allegedly concealing efforts to ensure high-value U.S. customers continued trading on the platform. The lawsuit goes on to detail how, contrary to Binance’s public announcements, the company allegedly facilitated specific U.S. customers in circumventing controls to keep trading on the platform.
Conflict of Interest and Lack of Disclosure
Further charges lodged by the SEC suggest Binance and CZ violated critical provisions of federal security laws, including self-dealing and market manipulation. Allegedly, two entities controlled by CZ—Merit Peak Limited and Sigma Chain—played a central role in these violations. According to the SEC, Merit Peak, based in the British Virgin Islands, was one of the “earliest market makers” on Binance’s U.S. platform.
CZ’s Response to the Allegations
Amid these mounting allegations, CZ has taken to Twitter to voice his stance. The Binance CEO dismissed the charges by tweeting “4,” a term used in the Binance community to indicate the need to ignore Fear, Uncertainty, and Doubt (FUD). In response to the SEC complaint, CZ has stated that the company will issue an official response once they have thoroughly reviewed the complaint.
A String of Legal Woes for Binance
This lawsuit is part of a series of legal troubles for Binance. Earlier this year, the U.S. Commodity Futures Trading Commission (CFTC) accused Binance of offering unregistered crypto derivatives products in the U.S., which federal law prohibits. Notably, some allegations in the SEC’s lawsuit mirror those of the CFTC’s complaint.
Binance is also under investigation by the Justice Department for potential money laundering and sanctions violations. Despite these legal challenges, Binance remains the dominant player in the crypto trading landscape, processing trades worth about $65 billion a day last year and capturing up to 70% of the market.
Conclusion
While the outcome of the lawsuits is yet to be determined, they signify increased scrutiny and regulatory pressure on cryptocurrency exchanges, especially those with significant market share. As the crypto industry continues to mature, exchanges like Binance are likely to face more such regulatory hurdles and growing demands for transparency and compliance.
