It’s no secret that the US Securities and Exchange Commission has investigated Binance, the world’s largest crypto exchange, which has no headquarters or official address, but processes $12 billion worth of cryptocurrency transactions daily. But the indictment filed today by the SEC in the District of Columbia lists 13 alleged violations of securities laws, some with unavoidable echoes of FTX, the crypto exchange that spectacularly collapsed in November, sparking turmoil in the whole industry took care of.
Among other allegations, the SEC alleges that Binance and the company’s CEO and founder, Changpeng Zhao, had the freedom to “route customer assets at their own discretion” to another company owned by Zhao, Sigma Chain – an entity accusing the SEC of engaging in “manipulative trading that the [Binance] trading volume.” The SEC also alleges that Binance and Zhao hid the commingling of billions of dollars in customer assets delivered to yet another third party, Merit Peak Limited, also owned by Zhao. In the case of FTX, the assets would of clients have been blended and transferred to a sister company, Alameda Research, to finance, among other things, trading activities and debt service.
“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflict of interest, lack of disclosure and calculated evasion of the law,” SEC Chairman Gary Gensler said in a statement accompanying the indictment. “The public should be careful not to invest their hard-earned assets with or on these illegitimate platforms,” Gensler said.
In an emailed statement, Binance spokesperson Simon Matthews said the company is “disappointed” with the SEC charges and attacked the regulator for failing to adequately regulate crypto companies operating in the US – now a common practice. Chorus. He also said that all user assets on all Binance platforms are “safe and secure”. In a tweet published shortly after the SEC complaint, Zhao wrote “4” — a symbol he uses to dismiss allegations against his company as baseless FUD (shorthand for fear, uncertainty, and doubt).
But as dramatic as the allegations may seem, industry players were far from shocked. “Nobody operating in the space will be surprised by any of the charges,” said Cory Klippsten, CEO of rival trading platform Swan Bitcoin.
Founded by Zhao in 2017, Binance expanded rapidly with an emphasis on low cost, alternative crypto assets and advanced investment products. But it has long had a strained relationship with regulators.
Since US law prohibits the sale of crypto derivatives – more lucrative but riskier investment products – Binance has a separate, more limited service, Binance.US. But the SEC alleges that the exchange deliberately circumvented geo-restrictions to allow US users to trade on its international platform, claiming that the two platforms effectively operated as one – with no controls to protect their independence. Another regulator, the Commodities and Futures Trading Commission, has previously made the same accusation.
The SEC also alleges that Binance misled investors about risk controls supposedly put in place to protect against manipulative practices such as “wash trading” — a process of selling crypto assets in a circular pattern between a small number of accounts, creating an exaggerated appearance of demand and possibly inflate the price. The complaint alleges that wash trading was commonplace on Binance.US.
