The U.S. Securities and Exchange Commission (SEC) has filed 13 charges against Binance Holdings Ltd., its U.S.-based affiliate BAM Trading Services Inc., and their founder, Changpeng Zhao (“CZ”), as reported in an SEC press release issued on June 5, 2023. The charges include operating unregistered exchanges, broker-dealers, and clearing agencies, misrepresenting trading controls and oversight on the Binance.US platform, and the unregistered offer and sale of securities.
According to the SEC, Binance and Zhao publicly claimed that U.S. customers were restricted from transacting on Binance.com, but in reality, they allegedly subverted their own controls to secretly allow high-value U.S. customers to continue trading on the platform. The SEC also alleges that Binance and Zhao publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, but they secretly controlled the Binance.US platform’s operations behind the scenes.
The SEC’s complaint further alleges that Binance and Zhao exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain. The SEC also alleges that BAM Trading and BAM Management US Holdings, Inc. misled investors about non-existent trading controls over the Binance.US platform, while Sigma Chain engaged in manipulative trading that artificially inflated the platform’s trading volume.
SEC Chair Gary Gensler stated that Binance and Zhao engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, added that Binance and Zhao not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits.
The SEC’s complaint, filed in the U.S. District Court for the District of Columbia, alleges that, since at least July 2017, Binance.com and Binance.US, while controlled by Zhao, operated as exchanges, brokers, dealers, and clearing agencies and earned at least $11.6 billion in revenue from, among other things, transaction fees from U.S. customers.
The SEC charged Binance for the unregistered offers and sales of BNB, BUSD, and crypto-lending products known as “Simple Earn” and “BNB Vault.” Further, the SEC charged BAM Trading with the unregistered offer and sale of Binance.US’ staking-as-a-service program.
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