On Monday, the U.S. Securities and Exchange Commission (SEC) filed charges against Binance, one of the largest cryptocurrency exchanges in the world. The SEC’s charges allege that Binance and its U.S. affiliate, Binance US, offered and sold securities without registering with the agency and acted as an unregistered exchange, broker-dealer, and clearing agency. The allegations involve Binance’s yield-generation schemes, BNB Vault and Simple Earn, as well as its native token BNB and stablecoin BUSD. BNB is currently the 4th largest cryptocurrency by market cap, and Binance holds a significant portion of its total supply.
The SEC also alleges that Binance moved and commingled customer assets in ways that are not typical of regulated firms. The agency claims that Binance and Binance US commingled billions of dollars in user assets from both platforms within an entity called “Merit Peaked Limited,” which is controlled by both Binance and its CEO, Changpeng Zhao (CZ). The assets were then transferred to third parties, similar to what former FTX boss Sam Bankman-Fried had done at his now-collapsed exchange. The SEC claims that Binance and CZ exercised control over Binance US and the assets on its platform, despite the pretense of independence from the American entity.
In addition, the SEC alleges that Binance secretly continued to service its most valuable US clients at the international exchange, as alleged by the Commodities and Futures Trading Commission in March. The SEC also accused a Zhao-controlled entity called “Sigma Chain” of engaging in wash trading at Binance US to inflate the trading volume and valuation of certain assets on the platform. This was possible since the entity did not implement the “surveillance or manipulative trading controls” that the firm’s management promised investors.
As punishment for its violations, the SEC seeks to ban Binance from the securities and crypto trading businesses altogether and to pay disgorgement penalties for any of its ill-gotten gains that resulted from its actions, plus pre-judgment interest.
Binance Responds to SEC Charges
Binance has denied the SEC’s charges and accused the agency of trying to gain “jurisdictional ground” in overseeing crypto against other regulators. In a public response letter, Binance stated that it prioritizes investors and that all user assets on Binance and its affiliate platforms, including Binance US, are safe and secure. Binance also denied claims made by Reuters last month that it had mixed user funds with corporate funds, saying any “mixing” that occurred was simply to convert users’ dollar deposits into BUSD.
The SEC’s charges against Binance mark one of the agency’s most significant enforcement actions against the crypto industry in history. Binance is one of the largest cryptocurrency exchanges in the world, with a reported daily trading volume of over $50 billion. The charges against Binance highlight the SEC’s increasing scrutiny of the cryptocurrency industry and its efforts to bring more clarity and regulation to the space.