SEC Sues Crypto Exchange Binance, CEO Changpeng Zhao Over Multiple Securities Violation Allegations

The U.S. Securities and Exchange Commission sued crypto exchange Binance, the operating company for Binance.US and Binance founder and CEO Changpeng “CZ” Zhao on allegations of violating federal securities laws on Monday.

Binance, Binance.US and CZ offered unregistered securities to the general public in the form of the BNB token and Binance-linked BUSD stablecoin, said the suit, which also alleges that Binance’s staking service violated securities law. There are similar charges against BAM Trading – the operating company for Binance.US – and Binance itself, including failure to register as a clearing agency, failure to register as a broker and failure to register as an exchange. The SEC also alleged that Binance allowed for commingling of customer funds, that CZ was “secretly” controlling Binance.US amd that a CZ-owned and operated entity was inflating Binance.US’s trading volume.

The suit also alleged multiple times that Binance allowed U.S. persons (meaning U.S. citizens or people living in the U.S.) to trade on its platform, despite saying it wasn’t.

“As a second part of Zhao’s and Binance’s plan to shield themselves from U.S. regulation, they consistently claimed to the public that the Binance.com Platform did not serve U.S. persons, while simultaneously concealing their efforts to ensure that the most valuable U.S. customers continued trading on the platform,” the suit said. “When the Binance.US Platform launched in 2019, Binance announced that it was implementing controls to block U.S. customers from the Binance.com Platform. In reality, Binance did the opposite. Zhao directed Binance to assist certain high-value U.S. customers in circumventing those controls and to do so surreptitiously because – as Zhao himself acknowledged – Binance did not want to ‘be held accountable’ for these actions.”

In a press release, SEC Chair Gary Gensler said, “Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”

The SEC lawsuit adds to allegations brought in March of this year by the U.S. regulator Commodity Futures Trading Commission (CFTC) that Binance and its founder Changpeng Zhao knowingly offered unregistered crypto derivatives products in the U.S. against federal law. Many of the allegations in the SEC’s lawsuit also resembles the CFTC’s complaint.

SEC and Binance spokespeople did not immediately return requests for comment on Monday.

In a tweet, CZ tweeted “4,” essentially calling the news “fud,” (for fear, uncertainty and doubt).

Ian Allison and Jack Schickler contributed reporting.

UPDATE (June 5, 2023, 15:23 UTC): Adds CZ tweet.

UPDATE (June 5, 2023, 15:35 UTC): Adds details from suit.