The United States Securities and Exchange Commission (SEC) sued Binance, the world's largest cryptocurrency exchange, on Monday. The indictment alleges that this foreign company operated an illegal exchange in the US.
The SEC document, filed in the District of Columbia court, specifies thirteen counts. It includes the name of Changpeng Zhao, founder and majority shareholder, as the main defendant.
According to the lawsuit, the commission accuses Binance and Zhao of embezzling client funds and even diverting them to a trading entity under Zhao's control. That company, Sigma Chain, was engaged in fraudulent trading that the volume of Binance made seem far more important than it was.
The US regulator maintains that Zhao and his employees worked to subvert its controls and allow high-value US investors and clients to continue trading on Binance's unregulated international exchange.
A senior manager at the company allegedly told an SEC official that the company operated like a "fucking stock exchange without a license in the United States," the document says.
The complaint argues that Binance created Binance US as a protective shield for the parent company and Zhao to “prevent disclosure, delay, and resolve law enforcement objectives” and isolate Binance.
This platform raked in $11.6 billion in revenue, much of which came from transaction fees, from June 2018 to July 2021. Right from the start, the exchange worked initially excessively and then sneakily to attract US customers. The US, under the direction and control of Zhao, insists the SEC.
Binance was aware that tens of thousands of clients were in the United States, but chose not to act, the commission argues, despite federal laws prohibiting the unregistered offering and sale of securities. The company's final compliance, in 2019, was largely a spectacle," the document insists.
Zhao is credited with ordering to create a circumvention plan on high-value customers by creating a VPN, or virtual private network, to hide their US location and submit compliance documents to obscure the country of origin.
This lawsuit presents Binance with a new challenge from US regulators. The federal agency that controls futures markets (CFTC) alleged last March that the company and its founder evaded the agency's rules, rules that affect platforms that offer derivatives to investors.
He also faces an investigation by the Department of Justice for his programs to detect money laundering.
In a tweet, Zhao said he had not seen the SEC's complaint, but would respond as soon as he could study it. “Our team is ready to ensure that the systems are stable, including withdrawals and deposits,” he added to reassure the market that his clients could proceed to withdraw the funds.
