On June 5, the District Court for the District of Columbia saw the United States Securities and Exchange Commission (SEC) file a lawsuit against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ). The SEC pressed 13 charges against Binance, including allegations of unregistered sales and offers involving BNB and Binance USD tokens, as well as various products and programs such as Simple Earn, BNB Vault, and the staking program. The suit also accuses Binance of failing to register its Binance.com platform as an exchange or a broker-dealer clearing agency, and it claims that both Binance and BAM Trading (the legal entity of Binance.US) failed to register Binance.US as an exchange, broker, and clearing agency. CZ is sued as a “controlling person” in the case.
According to the SEC, the defendants enriched themselves by billions of U.S. dollars while putting investors’ assets at significant risk. The suit alleges that Binance engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes. It also accuses BAM Trading and BAM Management of defrauding equity, retail, and institutional investors by providing false information about surveillance and controls over manipulative trading on the Binance.US Platform.
Among the charges, it is claimed that Binance failed to prevent U.S. investors from using Binance.com and that Binance.US participated in wash trading through its undisclosed market-making trading firm, Sigma Chain, which is owned by CZ. Additionally, the suit alleges that funds from Binance and Binance.US were combined in an account controlled by Merit Peak Limited, which is associated with CZ. These charges align with complaints previously filed by the Commodity Futures Trading Commission.
SEC Chair Gary Gensler stated that Binance and CZ misled investors about risk controls, manipulated trading volumes, concealed information about the platform’s operators, the market maker engaged in manipulative trading, and the custody of investor funds and crypto assets.
The SEC is seeking a permanent injunction on Binance and CZ to prevent further activities, disgorgement of ill-gotten gains with interest, and financial penalties. The suit claims that the tokens traded on the Binance exchange, including BNB, BUSD, Solana, Cardano, Polygon, Filecoin, Cosmos, The Sandbox, Decentraland, Algorand, Axie Infinity, and COTI, are securities.
Both Binance and Binance.US have responded to the suit. Binance.US labeled the SEC’s claims as an example of “regulation by enforcement” and declared the suit to be baseless, stating their intention to vigorously defend themselves. Binance.com, in a blog post, asserted that they have cooperated with the SEC’s investigations and addressed their concerns. They disputed the SEC’s allegations, particularly the emergency basis of the enforcement action.
Allegations against Binance are not new, as an SEC investigation reportedly began in June 2022. Binance has dismissed reports of fund mismanagement as conspiracy theories.