On Monday, the U.S. Securities and Exchange Commission (SEC) filed a number of indictments against Binance, making it one of the agency’s most significant enforcement actions ever against the crypto industry.
Let’s take a look at the regulator’s most surprising allegations against the exchange and how Binance has responded to them.
What did Binance do?
of 136 page filing Binance and Binance US have been accused of participating in “unregistered offers and sales” of cryptocurrency securities while functioning as “exchanges, broker-dealers and clearinghouses” without prior registration.
Among the illicit securities offered by the company were yield-generating schemes “BNB Vault” and “Simple Earn”, alongside the platform’s native token BNB and stablecoin BUSD. BNB is currently the 4th largest cryptocurrency by market capitalization, and Binance holds a significant portion of its total supply.
The SEC said that without the oversight typical of registered exchanges and broker-dealers, Binance moved and mixed customer assets in ways that regulated companies could not.
For example, the agency said that Binance and Binance US are merging billions of dollars in user assets from both platforms in an entity called Merit Peaked Limited, which is owned by Binance and its CEO Zhao Changpeng (CZ ) said they were both in control.
These assets were subsequently transferred to third parties. This is similar to what former FTX president Sam Bankman-Fried did with his now-defunct exchange.
Generally, the lawsuit alleges that Binance and CZ exercised control over Binance.US and the assets on its platform, despite feigning independence from the U.S. entity.
It also accused Binance of secretly continuing to serve the most valuable U.S. customers on international exchanges, as the Commodity Futures Trading Commission claimed in March.
Finally, the SEC alleged that a Zhao-controlled entity called “Sigma Chain” engaged in wash trading on Binance US, inflating the trading volume and valuation of certain assets on the platform. This was made possible because the company’s management did not implement the “monitoring or manipulative trading regulations” promised to investors.
Binance punishment and response
In penalties for violations, the SEC has banned Binance from securities and cryptocurrency trading business entirely and seeks disgorgement fines and pre-judgment interest payments for illicit gains arising from its conduct.
in public reaction letterBinance has accused the SEC of not prioritizing investors and instead seeking “jurisdiction” to oversee cryptocurrencies against other regulators.
“All user assets on Binance and Binance Affiliate Platforms, including Binance.US, are safe and we will vigorously defend against any claims to the contrary,” the company wrote.
binance rejected Reuters claimed last month to mix user funds with corporate funds, saying the “mixing” that took place was simply to convert users’ dollar deposits into BUSD.
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