SEC Accuses Binance of Evading U.S. Securities Laws
Allegations Against Binance
The U.S. Securities and Exchange Commission (SEC) has accused Binance, the largest crypto exchange globally, and its founder, Changpeng Zhao, of orchestrating a scheme to bypass U.S. federal securities laws. The SEC has brought 13 charges against Binance, including operating an unregistered securities exchange and allowing U.S. customers access to its platform without proper restrictions.
Mismanagement of Customer Funds
The SEC's complaint highlights the alleged commingling of billions in customer funds with company assets. These funds were reportedly mixed in an account controlled by a Zhao-associated firm, Merit Peak. This practice contravenes U.S. regulations that necessitate the separation of customer funds. A significant portion of these funds was transferred to another entity, raising concerns about potential loss or theft.
Diversion of Assets
The SEC further alleges that Zhao and Binance diverted funds at will, including transferring assets to a Switzerland-based trading firm, Sigma Chain, also controlled by Zhao. Transactions allegedly involved tens of billions of dollars, with examples such as a $145 million transfer from Binance.US to Sigma Chain, which included spending on luxury items.
Control and Compliance Issues
Despite public claims of restricting U.S. users, the SEC suggests that Binance intentionally circumvented its controls to allow U.S. trading. Zhao supposedly devised a strategy to evade regulatory compliance, contradicting the firm's stated policies. The SEC also points out the involvement of Binance employees in managing Binance.US's operations, indicating a lack of independence.
Alleged Wash Trading
The SEC accuses Sigma Chain of engaging in wash trading from 2019 to 2022, artificially inflating trading volumes on the Binance.US platform. This activity created conflicts of interest, as Zhao's financial interests were intertwined with those of Binance.US customers.
The SEC's charges against Binance highlight serious concerns about regulatory compliance and financial transparency within the crypto industry.
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