In recent news on cryptocurrency, Binance, the largest crypto exchange worldwide, and its billionaire founder, Changpeng Zhao, have been sued by the Securities and Exchange Commission (SEC). The SEC has come up with 13 charges. According to these charges, Binance and Zhao have violated securities laws by attracting U.S. customers to its unregulated international platform and mixing investor funds with their own.
The SEC accuses Zhao and Binance of bypassing their own controls to allow high-value American investors to continue trading on the unregulated international exchange. The complaint states that Binance created a subsidiary, Binance.US, to protect the parent company from legal actions. It is alleged that Binance.US was set up under Zhao’s control as a cover to avoid legal scrutiny. Moreover, the SEC claims Zhao did this to protect the international operations of Binance.
The lawsuit comes on the heels of a similar complaint lodged by the Commodity Futures Trading Commission (CFTC) earlier this year. The SEC’s charges add to Binance’s growing list of legal issues.
According to the SEC, between June 2018 and July 2021, Binance raked in $11.6 billion in revenue. According to them, a significant portion of revenue was derived from transaction fees. The regulatory body alleges that Binance has continuously sought to lure U.S. customers, under the direction of Zhao, in contravention of U.S. securities laws.
Former Binance.US CEOs Testify Against CZ Binance
The SEC complaint reveals damning testimony from two anonymous Binance.US CEOs, identified as “BAM CEO A” and “BAM CEO B”. They express deep concerns about Zhao’s controlling role and deviation from the company’s stated mission, leading to their departure.
Furthermore, the SEC contends that Binance and Zhao devised an evasion strategy for their wealthy customers. Using VPN services to conceal their U.S. location and submitting misleading compliance documents, Binance’s customers were able to hide their country of origin.
Adding to these allegations, the SEC claims Binance and Zhao manipulated market prices for their own gain. According to the SEC, two companies owned by Zhao, Merit Peak, and Sigma Chain, acted as market-makers for Binance. However, these companies allegedly commingled billions in customer funds with Binance’s money. They also stand accused of inflating crypto prices by trading amongst themselves in a practice known as “wash trading”.
In response to the allegations, Zhao dismissed the charges on Twitter, using a popular refrain “4” in the Binance community. Through his Twitter account, CZ urged users to ignore fear, uncertainty, and doubt.
Binance responded to the charges in a blog post, expressing disappointment at the SEC’s decision and affirming its ongoing cooperation with the SEC investigations. The company also noted that it had been engaging in extensive discussions to reach a negotiated settlement.
The SEC’s complaint includes a high-level breakdown of Binance’s ownership structure. It alleges that Zhao, along with his holding vehicles, exercises total control over Binance. This includes its American subsidiary, Binance US. The regulator has accused the defendants of showing a “blatant disregard” for U.S. federal laws.
CZ Binance Tweet Streak After SEC Lawsuit
In a recent tweetstorm, CZ Binance responded to the recent actions by the SEC. The SEC recently sued Binance, accusing it of violating securities laws, and has sought a temporary restraining order to freeze Binance US assets.
CZ took a defiant stance against the SEC in a streak of tweets. This tweet seemed to imply that the SEC might be overstepping its bounds in its aggressive pursuit of cryptocurrency exchanges and not necessarily acting in the best interests of investors.
Later CZ clarified a tweet made by a Twitter influencer. He stated that this lawsuit could only affect Binance US and none of the other parts of Binance globally. Moreover, he focused on the fact that SEC is seeking to temporarily freeze Binance US assets. This tweet acknowledges the potential impact on US-based users of the platform, while also subtly emphasizing the localized nature of the issue. To many, this is an attempt to reassure the vast majority of Binance users outside the United States who will remain unaffected.
CZ Binance: “They Didn’t Sue FTX”
CZ also highlighted the inconsistency in the SEC’s actions by pointing out that FTX, another major cryptocurrency exchange, was not subjected to similar legal actions, tweeting “They didn’t sue FTX.” The insinuation could be that the SEC’s choice to target Binance may be unfair. This goes in line with the recent SEC lawsuit against Coinbase as well.
The tweets from CZ come amid a tense climate for cryptocurrency exchanges as regulators worldwide grapple with how to handle the burgeoning industry. While the ultimate outcome of the SEC’s lawsuit against Binance remains to be seen, CZ’s tweets indicate a combative stance against regulatory actions that he perceives as excessive or inconsistent.
The SEC’s actions against Binance have stoked further debate about the role of regulatory agencies in the rapidly evolving world of cryptocurrency. For many, CZ’s tweets represent a wider sentiment within the cryptocurrency community, a call for fair and consistent regulatory practices. As the legal battles continue, the world will watch to see how the regulations shape the future of cryptocurrency exchanges, especially giants like Binance and Coinbase.