U.S SEC Files 13 Charges Against Binance; the Crypto Exchange Calls It An Industry AttackStating that the crypto exchange operated under a 'web of deception', SEC alleged it was misleading investors, manipulating trading volume, and mixing and diverting customer assets

On Monday, the U.S. Securities and Exchange Commission (SEC) charged Binance Holdings Ltd, Binance.us (U.S. vertical), BAM Trading Services Inc., and its founder Changpeng Zhao with 13 securities law violations.

"Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms," said Gary Gensler, SEC Chair.

Stating that the crypto exchange operated under a 'web of deception', SEC alleged that while Zhao and Binance claimed that U.S. customers could not carry out transactions on Binance.com, in reality, it controlled and allowed for high-value U.S. customers to continue trading on Binance.com. Binance.us was publically claimed to be created as a separate and independent entity of Binance for U.S. investors, however, Zhao and Binance secretly pulled the strings.

Furthermore, the body also shared that Zhao and Binance exercised control over the platforms' customers' assets, leading to a mix or diversion of assets as they pleased, including to an entity owned by Zhao himself, Sigma Chain.

BAM Trading and BAM Management U.S. Holdings, Inc. are reported to have misled investors about non-existent trading controls over Binance.com, while Sigma Chain is said to have allegedly manipulated the artificial inflation of the platform's trading volume. The complaint filed also shared that "billions of dollars of investor assets" were mixed and sent to a third party by the name of Merit Peak Limited, also owned by Zhao.

"The Complaint also charges violations of critical registration-related provisions of the federal securities laws: Binance and BAM Trading with operating unregistered national securities exchanges, broker-dealers, and clearing agencies; Binance and BAM Trading with the unregistered offer and sale of Binance's own crypto assets, including a so-called exchange token, BNB, a so-called stablecoin, Binance USD (BUSD), certain crypto-lending products, and a staking-as-a-service program; and Zhao as a control person for Binance's and BAM Trading's operation of unregistered national securities exchanges, broker-dealers, and clearing agencies," also read the official release of SEC.

Binance Strikes Back

In response, Binance US took to Twitter to address the alleged claims and called it "an all-too-common occurrence." Additionally, it also openly indicated that SEC was targeting the industry and seeking a near ban of the players and market following a similar action taken against Coinbase, Gemini, Kraken, and other market participants.

On Tuesday, Binance also took to the micro-blogging platform to address the alleged claims via an official blog, "SEC Complaint Aims to Unilaterally Define Crypto Market Structure."

Our response to the SEC's complaint.https://t.co/mgXxGTKr67

— Binance (@binance)6月5, 2023

“我们感到失望,美国证券Exchange Commission chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief. From the start, we have actively cooperated with the SEC's investigations and have worked hard to answer their questions and address their concerns. Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations. But despite our efforts, with its complaint today, the SEC abandoned that process and instead chose to act unilaterally and litigate. We are disheartened by that choice," read the blog.

While Binance shared that it was taking the allegations seriously, it also asserted that any allegations regarding user assets on the Binance.US platform are wrong, and there will be zero justification from their staff.

Furthermore, it also sheds light on the SEC's refusal to engage with the crypto venture to address the issues, "It seems based on these developments that the SEC's goal here was never to protect investors; if that were truly the case, the Staff would have thoughtfully engaged with us on the facts and in our efforts to demonstrate the safety and security of the Binance.US platform. The SEC's real intent here, instead, appears to be to make headlines."

"Because Binance is not a U.S. exchange, the SEC's actions are limited in reach. Still, we stand with digital asset market participants in the U.S. in opposition to the SEC's latest overreach, and we are prepared to fight it to the full extent of the law," also read the blog.

Previously, in March, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance over regulatory violations.