SEC is Suing Binance - What Does it Mean?
On the 5th of June, the United States Securities and Exchange Commission (SEC) filed a lawsuit against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ) in the District Court for the District of Columbia.
The SEC brought 13 charges against Binance, including allegations of unregistered sales of BNB and BUSD tokens, as well as violations related to its products and staking program. The lawsuit also claims that Binance failed to register its Binance.com platform and that Binance.US and its legal entity, BAM Trading, did not register as an exchange or broker-dealer clearing agency. CZ was sued as a "controlling person."
The SEC accuses Binance of enriching itself while putting investors' assets at risk and engaging in unregistered offers and sales of crypto asset securities. The suit further alleges fraud by BAM Trading and BAM Management, stating that they misled investors about surveillance and manipulative trading controls on the Binance.US platform.
The charges also include claims of wash trading and commingling of funds. These allegations align with previous complaints from the Commodity Futures Trading Commission. CZ has denied those charges in a blog post.
Investors pulled $780 million from Binance
Following the lawsuit, investors have withdrawn approximately 780 million USD from the platform in the past 24 hours. The SEC charges Binance with thirteen civil allegations, including accusations of diverting customer funds to a trading entity controlled by Zhao and engaging in manipulative practices to inflate trading volumes.
The complaint also states that Binance operated unregistered exchanges and provided misleading information about its trading controls. In response, Binance denies the allegations and asserts that user assets on its U.S. platform have never been in jeopardy. However, the company acknowledges its cooperation with SEC investigators.
Was the lawsuit expected?
The recent announcement of the SEC filing a lawsuit against Binance did not come as a surprise to the crypto community, as the SEC's focus on the exchange was already known. CZ stated on Twitter that the media had received the information before Binance did, indicating some scrambling behind the scenes.
Binance issued two statements in response to the lawsuit, expressing disappointment in the SEC's lack of clarity and guidance while emphasizing the impact on financial innovation. Another statement addressed legal issues, highlighting the lack of due process, and promising a strong defense.
Although the allegations were not surprising to those familiar with Binance, some details in the suit, such as quotes from Binance executives acknowledging unlicensed operations, raised eyebrows. The lawsuit also shed light on Brian Brooks' short tenure as CEO of Binance.US, with Brooks stating that he realized CZ was the actual CEO of BAM Trading, leading him to leave the company.
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