Binance Accused Of Misusing Funds & Lying
The S.E.C. accused Binance, the biggest crypto exchange, of blending customer funds and transferring them to another company owned by the founder, Changpeng Zhao.
It's June 5, 2023. The time is 7:42 p.m. ET. This is an update.
The Securities and Exchange Commission (SEC) is saying Binance, the biggest crypto exchange in the world, didn't handle customer funds right. They also lied to American regulators and investors about what they were doing. The case could change things for power and money in crypto.
The S.E.C. filed a lawsuit accusing Binance of breaking investor protection laws. This is the second time this year that regulators have accused Binance of this. The exchange has a high trading volume and has long been a target for regulators trying to regulate the anti-government crypto industry.
Binance is being accused by the S.E.C. of mixing customer funds. They sent billions of dollars to another company controlled by Binance's founder, Changpeng Zhao. The company in question is called Merit Peak Limited. The S.E.C. has outlined their claims in a 136-page complaint.
Binance got a complaint stating that it deceived investors about its systems' ability to control manipulative trading and restrict U.S. users from its global platform. It was supposed to let U.S. customers use Binance.US.
Regulators claimed Binance and its CEO, Mr. Zhao, made billions of dollars while putting investors' assets in danger. They filed a civil lawsuit in Washington's Federal District Court.
Binance expressed disappointment and sadness over the S.E.C.'s decision to bring a case. The company's leaders tried to settle with regulators beforehand. Binance thinks the decision is wrong. They believe the case won't help clarify the rules for digital assets. The company plans to defend itself strongly.
Binance said S.E.C. went too fast in filing the lawsuit. They said regulators gave them 26 new document requests last week.
US regulators and prosecutors are taking actions to regulate crypto trading. FTX founder, Sam Bankman-Fried, faces a trial for fraud and other charges in October. The SEC has also fined crypto lending firms.
The S.E.C. thinks that lots of crypto tokens from exchanges like Binance and FTX are like securities.
Binance faces tough regulations from U.S. regulators. The crypto world is being alerted. This is what Reena Aggarwal, a finance professor at Georgetown University, said.
Binance was feeling the heat. It faces troubles like the Commodity Futures Trading Commission filing a case against Binance and Mr. Zhao in March. Also, the Justice Department is checking them out for money laundering. Binance lost its external auditing firm last year, and its dominance over the crypto market has declined.
Binance has hired new compliance officials. These officials include a former federal prosecutor. The prosecutor now leads the compliance operation. Binance hopes this will improve their reputation.
According to lawyer David Silver, the recent S.E.C. complaint exposes the negative aspects of crypto. Binance, a major global exchange, has been accused of misleading the public for years. Silver has sued Binance multiple times in the past.
Binance and Mr. Zhao, also known as C.Z., are facing 13 charges from the S.E.C. The S.E.C. wants restitution from Binance and to prevent Mr. Zhao from being an officer or director for any U.S. entity that issues securities.
Gurbir S. Grewal, head of the S.E.C.'s enforcement division, claims that Zhao and Binance intentionally broke the rules. They disregarded the safety of their clients and investors.
The C.F.T.C. wants to permanently stop Mr. Zhao from doing business under its control. They also want to ban Binance from the United States forever.
The S.E.C. and C.F.T.C. work together when investigating companies. They've been fighting over which one regulates crypto trading.
Binance used to be outside the US, letting Americans do risky trading that is not allowed. Then, they made a new place in the US with fewer options. They said this new place, Binance.US, would be separate and have its own leaders.
The S.E.C. accused Mr. Zhao and his group of hiding their actions. They enabled U.S. customers to trade on Binance's unregulated offshore exchange. The separate entity was used to conceal this.
Binance has been accused by the S.E.C. of attracting American customers to its international exchange. This is not allowed because it is not supposed to operate in the United States. A Binance executive wrote that they cannot be seen to have U.S. users but they should get them through other ways.
Binance acted dishonestly when it agreed to follow US regulations, according to the complaint. They claimed Binance.US was different from their offshore parent, but top leaders were actually involved. An executive even said they felt tricked into being a puppet.
Mr. Zhao got caught by S.E.C. for instructing V.I.P. customers to evade restrictions. Binance's strategy to keep U.S. investors but pretend to restrict them was effective.
Binance faces similar accusations to FTX. FTX's CEO got in trouble for using customer deposits for other things, like making donations. Binance's CEO, Mr. Zhao, has been accused of putting over $20 billion in his company's bank account, including money from customers.
FTX is being accused of misusing customer money by utilizing Alameda Research, which is managed by Mr. Bankman-Fried.
The complaint said that sending customer funds to Merit Peak was dangerous. The funds could be lost or stolen. Also, customers were not told about this.
Matthew Goldstein reports on Wall Street. He also covers white-collar crime and housing issues. The Twitter handle for Matthew Goldstein is @mattgoldstein26.
Emily Flitter reports on finance. Her book is called "The White Wall: How Big Finance Bankrupts Black America." You can find her on Twitter as @FlitterOnFraud.
David Yaffe-Bellany writes about cryptocurrencies and financial technology. He went to Yale University and reported in different states like Texas, Ohio, Connecticut and Washington, D.C. on other occasions. His Twitter handle is @yaffebellany.
