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Binance Faces Lawsuit By US Regulators Over Alleged Deception

Updated: Jan 4

[Edited] In a major legal blow to Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao, US regulators have filed a lawsuit accusing them of operating a "web of deception."

Binance CEO Changpeng Zhao
Binance CEO Changpeng Zhao. Credit: Reuters

The Securities and Exchange Commission (SEC) lodged a complaint in a federal court in Washington, D.C., listing 13 charges against Binance, Zhao, and the operator of its supposedly independent US exchange.

The SEC alleges that Binance artificially inflated its trading volumes, diverted customer funds, failed to restrict US customers from its platform, and misled investors about its market surveillance controls. Furthermore, the SEC claims that Binance and Zhao secretly controlled customers' assets, allowing them to commingle and divert investor funds as they pleased.

According to the SEC, Binance created separate US entities as part of an elaborate scheme to evade US federal securities laws. This echoes previous investigations by Reuters, which reported on various practices employed by the exchange. The SEC also alleges that a trading firm owned and controlled by Zhao, Sigma Chain, engaged in wash trading to artificially inflate the trading volume of crypto asset securities on the Binance.US platform.

SEC Chair Gary Gensler stated, "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."

In response, Binance released a blog post stating their intention to vigorously defend their platform. They emphasized that the SEC's actions are limited in reach since Binance is not a US exchange. Binance assured users that all assets on their platform, including Binance.US, are safe and secure.

Binance also issued a statement expressing their active cooperation with the SEC from the beginning and their respectful disagreement with the allegations. They claimed to have been seeking a reasonable resolution with the SEC but were met with new requests and a sudden court filing. Binance suggested that the SEC's actions were an attempt to claim jurisdictional ground from other regulators.

Binance.US, which is ultimately controlled by Zhao, tweeted that the lawsuit was unjustified by the facts, the law, or the Commission's own precedent.

The news of the lawsuit had an immediate impact on the cryptocurrency market. Bitcoin, the world's largest cryptocurrency, dropped as much as 6% to its lowest level in almost three months. Binance's own cryptocurrency, BNB, the fourth-largest by market size, also experienced a decline of over 5%.

Market players believe that the SEC's allegations could significantly hinder Binance, given its dominant position in the crypto trading industry. Last year, Binance processed trades worth approximately $65 billion per day.

This lawsuit adds to the legal headaches for Binance, as it was previously sued by the US Commodity Futures Trading Commission (CFTC) in March for operating an "illegal" exchange and a "sham" compliance program. Binance is also under investigation by the Justice Department for suspected money laundering and sanctions violations.

  • US regulators have sued Binance and its CEO Changpeng Zhao for allegedly operating a "web of deception."

  • The SEC accuses Binance of artificially inflating trading volumes, diverting customer funds, and misleading investors.

  • Binance denies the allegations and vows to vigorously defend its platform.


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