SEC files 13 charges against Binance

By Zion Rufus

The U.S. Securities and Exchange Commission (SEC) has taken legal action against Binance Holdings Ltd. (“Binance”), BAM Trading Services Inc. (“BAM Trading”), and their founder Changpeng Zhao.

The charges, totaling 13, allege various violations of securities laws, including operating unregistered exchanges, broker-dealers, and clearing agencies, misrepresenting trading controls and oversight on the Binance.US platform, and engaging in the unregistered offer and sale of securities.

The SEC’s investigation reveals that despite public statements by Changpeng Zhao and Binance claiming that U.S. customers were prohibited from using Binance.com, they secretly facilitated high-value U.S. customers to continue trading on the platform by bypassing their own controls.

Moreover, Zhao and Binance concealed their involvement in the operations of Binance.US, which they presented as an independent trading platform for U.S. investors.

The SEC further alleges that Zhao and Binance exercised control over customer assets, allowing them to mix and redirect funds at will, including sending them to Sigma Chain, an entity owned and controlled by Zhao.

Additionally, the complaint accuses BAM Trading and BAM Management US Holdings Inc. of misleading investors regarding non-existent trading controls on the Binance.US platform, while Sigma Chain engaged in manipulative trading to artificially inflate trading volumes.

The defendants are also accused of hiding the commingling of billions of dollars of investor assets and directing them to another Zhao-owned entity, Merit Peak Limited.

In addition to the aforementioned charges, the SEC has accused Binance and BAM Trading of operating unregistered national securities exchanges, broker-dealers, and clearing agencies.

They are also charged with conducting the unregistered offer and sale of their own crypto assets, including the BNB exchange token, Binance USD (BUSD) stablecoin, specific crypto-lending products, and a staking-as-a-service program. Changpeng Zhao is held accountable as a control person for the operation of these unregistered entities.

SEC Chair Gary Gensler expressed his concerns regarding the charges, stating, “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. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, underscored the intentional evasion of rules by Zhao and the Binance entities, putting customers and investors at risk while prioritizing their own profits.

Grewal highlighted the lack of transparency, reliance on related-party transactions, and false claims about controls to prevent manipulative trading as factors that exacerbated risks and conflicts of interest for investors.

The SEC’s complaint alleges that since at least July 2017, Binance.com and Binance.US, under Zhao’s control, functioned as exchanges, broker-dealers, dealers, and clearing agencies, accumulating over $11.6 billion in revenue from transaction fees, including those from U.S. customers.

The SEC argues that Binance.com should have been registered as an exchange, broker-dealer, and clearing agency, while Binance.US and BAM Trading should have registered as an exchange and clearing agencies, respectively. BAM Trading should have also been registered as a broker-dealer. Zhao is held liable as a control person for the registration violations of Binance and BAM Trading.

Additionally, the SEC has charged Binance with the unregistered offer and sale of BNB, BUSD, and crypto-lending products known as “Simple Earn” and “BNB Vault.”