SEC lawsuit against Binance reveals concerning allegations, exchange dismisses claims as “baseless”

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Key Takeaways

  • SEC has now taken steps to try and freeze Binance.US assets as part of its legal action.
  • SEC claims that the exchange and its founder allegedly enriched themselves by billions of U.S. dollars while exposing investors’ assets to significant risks. 

Newly released court filings reveal that the United States Securities and Exchange Commission (SEC) has been investigating Binance.US, the American arm of popular cryptocurrency exchange Binance, since at least 2020. The regulator alleges that the exchange has engaged in unregistered securities trading, and the evidence suggests hundreds of millions of dollars in profiteering by Binance.

Internal documents reveal that the SEC initiated the investigation and assigned officials to gather testimony on August 17, 2020. In a lawsuit filed on Monday, the SEC targeted both Binance’s U.S. and global entities, as well as its CEO, Changpeng “C.Z.” Zhao. The SEC has also taken steps to freeze Binance.US assets as part of its legal action.

The recent court filing, entered on June 5, reveals that the defendants, including CZ Zhao, BAM Management, BAM Trading, and Binance, have allegedly enriched themselves with billions of U.S. dollars while exposing investors’ assets to significant risks.

The SEC asserts that the defendants purposely evaded U.S. regulatory oversight while providing securities-related services to U.S. users. According to a report from CNBC, the SEC claims that the amount involved in the case could be as high as $2.2 billion.

The court filing offers an example of billions of dollars in customer funds from both Binance and Binance.US being mixed in an account controlled by a company associated with CZ Zhao, specifically identified as Merit Peak Limited. It further states that these funds were then transferred to a third party, apparently linked to the purchase and sale of crypto assets.

The SEC argues that this arrangement has given CZ Zhao unrestricted control over billions of dollars in assets deposited on the Binance.US platform without adequate oversight or security measures. However, Binance.US has assured its users that their funds remain safe despite the SEC’s attempts to freeze assets.

On June 6, the SEC filed a motion for a restraining order against Binance, citing mishandling of user funds and unregistered securities trading. Freezing the assets was among the requested actions outlined in the motion.

As per documents, the focus of the SEC probe on Binance since 2020 was potential violations of federal securities laws by BAM Trading Services Inc., which operates as Binance. U.S. SEC accountant Sachin Verma’s filing indicates that BAM Trading generated $411 million in revenue and $225 million in gross profit over a slightly over four-year period. 

In response to the lawsuit, Binance.US released a statement via Twitter on Monday, claiming to have engaged in good-faith discussions with the SEC for nearly two and a half years. The exchange asserts that the lawsuit is baseless and unjustified by the facts, the law, or even the SEC’s own precedents.

As the legal battle unfolds, the crypto community and industry stakeholders eagerly await further updates on the outcome of the SEC’s investigation into Binance.US and its potential ramifications for the broader cryptocurrency landscape.

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Saniya Raahath
Saniya Raahath

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