On Monday, the world’s leading cryptocurrency exchange, Binance, and its CEO Changpeng Zhao faced a lawsuit filed by U.S. regulators. The regulators accused them of operating a deceptive scheme, resulting in a web of misconduct. The Securities and Exchange Commission (SEC) lodged 13 charges against Binance, Zhao, and the operator of its supposedly independent U.S. exchange, bringing the case to a federal court in Washington, D.C.
The SEC alleged that Binance engaged in artificial inflation of trading volumes, diverted customer funds, failed to restrict U.S. customers from its platform, and misled investors about its market surveillance controls. Furthermore, the regulator claimed that Binance and Zhao secretly controlled customers’ assets, allowing them to co-mingle and divert investor funds at their discretion.
The SEC also accused Binance of using separate U.S. entities in an attempt to evade U.S. federal securities laws. These practices were previously reported by Reuters in investigations conducted in 2022 and this year.
The lawsuit also revealed that a trading firm owned by Zhao, Sigma Chain, allegedly engaged in wash trading on the Binance.US platform, artificially inflating the trading volume of crypto asset securities.
According to SEC Chair Gary Gensler, it is claimed that Zhao and entities associated with Binance orchestrated an intricate network of deceit, involving conflicts of interest, inadequate disclosure, and deliberate evasion of legal obligations.
In response, Binance vowed to vigorously defend its platform, emphasizing that the SEC’s actions have limited reach since Binance is not a U.S. exchange. Binance.US, controlled by Zhao, called the lawsuit unjustified and unsupported by the facts.
The market reacted strongly to the news, as the largest cryptocurrency, Bitcoin, experienced a substantial decline of nearly 6%. Similarly, Binance’s native cryptocurrency, BNB, also faced a significant drop of over 5%.
Legal experts predict that the lawsuit could severely affect Binance and have repercussions throughout the crypto industry. Binance dominates crypto trading, handling approximately $65 billion worth of trades per day and accounting for up to 70% of the market.
