Binance sued by SEC, an inevitable but ominous day for crypto

Key Takeaways

• The world’s biggest cryptocurrency exchange was sued by the SEC Monday
• Binance and its CEO Changpeng Zhao have fired back, denying any wrongdoing
• Our Head of Research, Dan Ashmore, looks into what it all means for crypto, and who is to blame

In a development that surprises precisely nobody, the SEC is suing Binance and its CEO, Changpeng Zhao. 

Before we get into what it all means for crypto, let’s quickly surmise what the lawsuit entails. The SEC outlined in a complaint filed Monday that the “defendants have enriched themselves by billions of US dollars while placing investors’ assets at significant risk”.

The charges are plenty, but among the most glaring is the SEC allegation that Binance knowingly operated in the US, despite repeated claims from Zhao and Binance that American consumers could not transact on the exchange (instead, a Binance.US subsidiary was launched for US customers in September 2019 after parent company Binance.com claimed they were leaving the US).

The SEC alleges that  “Zhao and Binance in reality subverted their own controls to secretly allow high-value US customers to continue trading on the Binance.com platform”, adding that “Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes”. A selection of entities and subsidiaries are named as Binance-affiliated and accused of further transgressions in the suit. One of these entities is the Zhao-controlled Sigma Chain, accused of engaging in “manipulative trading” to boost volume on Binance. 

The SEC also accuses Binance of commingling customer funds and moving them around as they please: “Lacking regulatory oversight, Defendants were free to and did transfer investors’ crypto and fiat assets as Defendants pleased, at times commingling and diverting them in ways that properly registered brokers, dealers, exchanges, and clearing agencies would not have been able to do”.

Then there is the heart of the issue, a question that has dogged crypto for a while now: what constitutes a security? While there are certainly grey areas within crypto, most notably stablecoins, there is the reality that a massive chunk of the tokens on the market will inevitably be seen as securities in the eyes of the law. 

At the end of the day, that is really all that matters. It appears Binance was more aware of…