SEC Sues Binance and CEO Changpeng Zhao for Misusing Customer Funds

A financial regulator has claimed that Binance misled them and diverted investor funds to another company.

The United States’ top financial regulator has filed a lawsuit against Binance, the largest cryptocurrency exchange, and its CEO for “placing investors’ assets at significant risk” despite making billions of dollars.

The Securities and Exchange Commission (SEC) said in a court filing that Binance illegally transferred “billions of dollars” in customer cash to an entity owned by the exchange’s founder and CEO, Changpeng Zhao.

According to the director of the SEC’s enforcement division, “We allege that Zhao and the Binance entities not only knew the rules of the road, but they consciously chose to evade them and put their customers and investors at risk,” Gurbir Grewal.

In its complaint filed Monday in Washington’s federal district court, the SEC alleged that the “Defendants have enriched themselves by billions of US dollars while placing investors’ assets at significant risk.” The lawsuit claims that Binance made at least $11.6bn (£9.3bn) in revenue between June 2018 and July 2021, with the vast majority coming from transaction fees.

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Among other accusations, the SEC contends that, while Zhao and Binance publicly claimed that US consumers were banned from transacting on Binance.com, “Zhao and Binance in reality subverted their own controls to secretly allow high-value US customers to continue trading on the Binance.com platform”.

Zhao, Binance Holdings, and two other Binance-related firms, BAM Trading Services and BAM Management US Holdings, face a total of 13 separate civil allegations. After the main Binance platform announced in 2019 that it was leaving the US market, a separate site, Binance.US, was developed for US consumers, according to the SEC.

The SEC claims that despite public statements to the contrary, Zhao and Binance “secretly controlled the Binance.US platform’s operations behind the scenes.” Binance.US was ostensibly built as a separate, independent trading platform for US investors.

The SEC claims that Zhao and Binance mixed consumer funds “as they please,” including sending some to Sigma Chain, a company controlled by Zhao. The authority claims that Sigma also used “manipulative trading” to increase Binance’s trading volume.US.

The SEC also accused Binance and BAM Trading of running unlicensed securities exchanges, broker-dealers, and clearing agencies, and of offering and selling unregistered digital tokens like Binance USD without proper registration. The complaint claimed that Zhao had “control person” status over the unlicensed currency transaction.

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The SEC lawsuit alleges that Zhao directed Binance to conceal the availability of high-spending US consumers to Binance.com. In one piece of evidence presented in the case, the Binance chief compliance officer messaged a colleague saying: “We are operating as a fking unlicensed securities exchange in the USA bro.” Binance’s chief compliance officer is mentioned again in the lawsuit as saying, “We do not want [Binance].com to be regulated ever.”

“We want to be clear that while we take the allegations in the SEC’s complaint seriously, they should not be the subject of an SEC enforcement action, let alone on an expedited basis,” stated a Binance spokeswoman. They have no basis in reality and should be avoided.

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