5 key highlights of the SEC’s lawsuit against Binance

The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance on June 5, alleging that the exchange was involved in the sale of unregistered securities. In its 136-page complaint, the SEC accuses Binance and its founder, Changpeng “CZ” Zhao, of participating in a complex conspiracy that involved fraud, conflicts of interest, a lack of disclosure and willful disregard for the law. 

The claims, according to SEC Chair Gary Gensler, center on deceiving investors about risk controls, tampering with trade volumes, hiding crucial operational data, and flouting U.S. securities laws. In order to avoid regulatory scrutiny, Binance allegedly created weak controls while secretly disobeying them to keep its highly valuable U.S. customers.

Today we charged Binance Holdings Ltd. (Binance); U.S.-based affiliate, BAM Trading Services Inc., which, together with Binance, operates https://t.co/swcxioZKVP; and their founder, Changpeng Zhao, with a variety of securities law violations.https://t.co/H1wgGgR5ir pic.twitter.com/IWTb7Et86H

— U.S. Securities and Exchange Commission (@SECGov) June 5, 2023

Here are the key highlights from the SEC’s complaint:

Unregistered securities offering

According to the SEC, Changpeng Zhao has been operating Binance.com and Binance.US as exchanges, brokers, dealers and clearing agencies since at least July 2017. The complaint claims that these companies have earned at least $11.6 billion through a variety of methods, including transaction fees collected from American clients.

According to the SEC’s complaint, Binance.com should have registered as a clearing agency, broker-dealer and exchange, while Binance.US and BAM Trading should have registered as clearing agencies and exchanges, respectively. BAM Trading also needed to register as a broker-dealer, and it was charged with the unregistered offer and sale of Binance.US’ staking-as-a-service program.

Controversial practice of allowing US customers to use Binance.com

Zhao launched Binance in Shanghai in 2017, but the exchange has been elusive about where its main office is located ever since. Binance’s parent company is situated in the Cayman Islands, which makes its organizational structure more complicated. The SEC alleges that, despite publicly claiming that Binance prohibited U.S. customers from trading, the exchange surreptitiously permitted them to keep using the platform, demonstrating a deliberate disregard for U.S. securities laws.

Binance created a sizable…