The United States Securities and Exchange Commission has sued Binance, the world’s largest cryptocurrency exchange, accusing the company of mishandling customer funds.
Binance and its CEO Changpeng Zhao, commonly known by his initials ‘CZ,’ face 13 federal charges that include misleading investors, manipulating customer assets, and failing to register with the proper regulatory bodies.
The SEC accused the crypto giant of creating ‘an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,’ SEC Chairman Gary Gensler said.
Regulators said that Zhao and Binance ‘commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain.’
Sigma Chain then used that money for ‘manipulative trading’ used to artificially inflate Binance’s trading volume.
Additionally, the company faces charges of deliberately chosing to ‘evade’ US law.
‘We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits,’ SEC Division of Enforcement Director Gurbir S Grewal said.
In 2019, Commodity Futures Trading Commission (CFTC) banned Binance from operating in the US, due to the fact that the company failed to properly register with the agency.
In order to comply with US law, the company set up a separate, independent exchange called Binance.US.
However, the SEC has now accused the Zhao of secretly manipulating and controlling Binance.US despite its purported independence.
Earlier on Monday, Reuters reported that a single Binance executive, Guangying Chen, was the primary operator of five accounts that held American customer funds in Binance.US.
As the primary operator, employees at the allegedly independent Binance.US had to ask Chen for permission to process payments from those accounts.
They also say Binance allowed certain ‘high-value US customers’ continued access to the original Binance exchange despite being banned from operating in the country.
The complaint alleges that Zhao personally directed these moves to break US law. ‘In one instance, the Binance chief compliance officer messaged a colleague that, “[w]e are operating as a fking unlicensed securities exchange in the USA bro,”’ the SEC said.
In a written statement published shortly after the SEC’s announcement, Binance called the charges ‘disappointing’ and ‘disheartening.’ The exchange said they were working with the regulatory body to address their concerns before the charges were filed.
‘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,’ Binance said. ‘We intend to defend our platform vigorously.’
The company also said all American customer funds held by Binance.US are ‘safe and secure.’
‘Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong,’ the company said.
The lawsuit comes months after Binance’s former top competitor FTX collapsed in part due to similar allegations of mishandling customer funds.
The company is now in bankruptcy, and its disgraced CEO Sam Bankman-Fried is now facing criminal charges for securities fraud and wire fraud.
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