The Securities and Exchange Commission (SEC) has filed 13 charges against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao, alleging that they commingled billions of dollars worth of user funds and transferred them to a European company controlled by Zhao. The U.S. regulator claims that Binance and Zhao manipulated their own controls to allow high-net-worth U.S. investors and customers to trade on Binance’s unregulated international exchange.
According to the SEC complaint, one senior executive referred to the company as an “unlicensed securities exchange in the USA.” The complaint further alleges that Binance created Binance.US as a shield to protect the main company and Zhao, obstructing law enforcement targets and insulating Binance from legal consequences.
Former CEOs of Binance.US, Catherine Coley and Brian Brooks, expressed concerns over Zhao’s level of control and testified before federal regulators. One former CEO, identified as “BAM CEO B,” stated that they left the company when they realized that the mission they signed up for was not being followed.
The SEC alleges that between June 2018 and July 2021, Binance generated $11.6 billion in revenue, primarily from transaction fees. The complaint asserts that Binance actively sought U.S. customers, despite federal laws prohibiting the unregistered sale of securities. The SEC claims that Binance knew about tens of thousands of U.S. customers but failed to take action.
The complaint also accuses Zhao of ordering the creation of an evasion plan for high-net-worth customers, utilizing VPN services to hide their U.S. location and submitting compliance documents to obscure their country of origin. Binance employees reportedly encouraged users to bypass the exchange’s “know your customer” systems using VPNs.
Additionally, the SEC alleges that Binance and Zhao used market-making companies they controlled to inflate trading prices and profit from their customers. The companies, Merit Peak and Sigma Chain, allegedly engaged in wash trading, artificially boosting the price of crypto assets by trading with themselves. Sigma Chain allegedly collected $190 million for Zhao and used $11 million to purchase a yacht.
Zhao responded to the charges on Twitter, dismissing them with the number “4,” a popular refrain among Binance’s community to ignore fear, uncertainty, and doubt (FUD). Binance stated in a blog post that it is disappointed with the SEC’s complaint and claims to have cooperated with the investigations.
The SEC’s complaint follows similar charges filed by the Commodity Futures Trading Commission against Binance for failing to prevent U.S. customers from accessing its platform.
