SEC says Binance and its CEO secretly control customers’ assets, allowing them to commingle and divert customer funds.
The United States Securities and Exchange Commission (SEC) has sued the world’s largest cryptocurrency exchange, Binance, and its CEO and founder, Changpeng Zhao, for allegedly failing to restrict US customers from its platform and misleading investors about its market surveillance controls as well as for operating an unregistered securities exchange.
The SEC’s complaint, filed on Monday in federal court in Washington, DC, also accused Binance and Zhao of secretly controlling customers’ assets, allowing them to commingle and divert customer funds, and charged that Binance had created separate US entities “as part of an elaborate scheme to evade US federal securities laws”.
In a tweet, Zhao said the company would issue a response to the charges once it had viewed the complaint.
The move is the latest in a series of legal woes for Binance, which was also sued by the US Commodity Futures Trading Commission in March for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance programme. Zhao called those charges “disappointing” and an “incomplete recitation of facts”.
Binance is also under investigation by the Department of Justice for suspected money laundering and sanctions violations, according to people familiar with the probe.
Binance was founded in Shanghai in 2017 by Zhao, a Canadian citizen born and raised until the age of 12 in China.
While its holding company is based in the Cayman Islands, Binance says it does not have a headquarters and has declined to state the location of its main Binance.com exchange.
Binance’s global trading platform, Binance.com, dominates the crypto trading landscape, last year processing trades worth about $65bn a day with up to 70 percent of the market.
The firm has processed at least $10bn in payments for criminals and companies seeking to evade US sanctions, the Reuters news agency has previously reported.
Reuters also reported on May 23 that Binance commingled its customers’ funds with its corporate revenues in a Silvergate Bank account belonging to trading firm Merit Peak in breach of US financial rules that require client money to be kept separate.
Binance denied mixing customer deposits and company funds, saying that users who sent money to the account were not making deposits but rather buying Binance’s bespoke dollar-linked crypto token.
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