The crypto community on June 5 was in an uproar again with the news that the US Securities and Exchange Commission (SEC) sued the world’s largest crypto exchange Binance and CEO Changpeng Zhao for US securities violations. As quoted by SEC, Binance’s own Chief Compliance Officer told another employee in 2018 that: “We are operating as a fking unlicensed securities exchange in the USA bro.”
The SEC’s allegations include:
- BNB and BUSD are securities;
- Unregistered offer and sale of crypto tokens including BNB and BUSD, crypto-lending products “Simple Earn” and “BNB Vault”;
- BAM Trading (a subsidiary of Binance in the US) has unlawfully engaged in unregistered offers and sales of crypto asset securities;
- Binance.US did not register as an “exchange”, “broker-dealer”, and clearing agency with the SEC;
- CEO Changpeng Zhao violated securities regulations as the head of Binance, BAM Trading and Binance.US;
- Binance and Zhao misused customers’ funds and diverted them to a trading entity that Zhao controlled.
SEC Chairman Gary Gensler said: “Through 13 charges, we allege that Zhao and Binance entities engaged in extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of law. Zhao and Binance artificially inflated its trading volumes and diverted customer funds, as well as failed to restrict US customers from its platform and misled investors about its market surveillance controls.”
The SEC lawsuit also alleged a number of other crypto tokens are securities, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, COTI.
Soon after, Binance denied the SEC’s allegations. In a blog post, Binance wrote:
“We are disappointed that the U.S. Securities and 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.”
Binance said it will take more steps to protect its platform. The exchange expressed that the SEC did not actively cooperate and called this “the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.”
About labeling an asset as a security, Binance said that the SEC only compounds these problems. Instead, the exchange expects a well-thought-out and flexible solution to a new and complex technology.
Regarding the US market, Binance said the country needs an effective regulatory framework that demands collaborative, transparent, and thoughtful policy engagement
“Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong, and there is zero justification for the Staff’s action in light of the ample time the Staff has had to conduct their investigation. All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary”, Binance added.
At the end of the blog post, Binance affirmed that it will continue to cooperate with regulators and policymakers in the US and many other countries around the globe. The exchange did not forget to reassure investors that “Binance is not a U.S. exchange” so the SEC’s actions are limited in reach.
On Twitter, Binance.US also shared a status mentioning how recent legal actions have affected not only the business of Binance.US, but also other exchanges such as Coinbase, Gemini or Kraken. After the legal moves, the cash flow is tending to move slightly away from decentralized exchanges (CEX).
According to data from Nansen, Coinbase is the exchange with the highest net withdrawals ($259 million) within 1 hour. Binance ranked second with net withdrawals of about $180 million. Within an hour after the SEC’s allegation, $273 million was withdrawn from this CEX exchange.
This is not the first time Binance has faced pressure to withdraw from the exchange because of negative news. Binance in 2023 continues to be targeted by governments of many countries, including:
- February: New York regulators have ordered the cryptocurrency firm Paxos to stop issuing Binance USD (BUSD), causing this coin’s market cap to plummet.
- March: The Commodity Futures and Trading Commission filed a complaint against crypto exchange Binance, its co-founder, Changpeng Zhao, and its former chief compliance officer, Samuel Lim, alleging that Binance actively solicited U.S. users and subverted the exchanges own “ineffective compliance program.”
- April: Binance US terminated Voyager acquisition, blaming the “hostile and uncertain regulatory climate in the U.S.”
- May: Binance withdrew from the Canadian market and no longer offers Aussie dollar deposit services and was also involved in rumors of large-scale layoffs.
All had a significant impact on Binance’s operations, Binance’s market share dropped from 57.5% to 43% in just three months.