Key takeaways:
- SEC Files Lawsuit Against Binance and CEO Changpeng Zhao for Mishandling Billions of Dollars, Alleging Deception and Diversion of Investor Funds.
- SEC’s enforcement division’s director accused CZ and Binance of knowingly avoiding regulatory rules, putting customers and investors at risk.
According to the SEC, Changpeng Zhao, the founder of Binance, and the company misappropriated customer funds, sometimes sending them to Sigma Chain, a company he owned that engaged in “manipulative trading” to increase the volume of trading on the cryptocurrency exchange.
Additionally, according to the lawsuit, despite Binance and Zhao’s claims that their U.S. subsidiary was an independent trading platform, they actually maintained control over it behind the scenes and reportedly let some U.S. users access the primary Binance exchange.
In a recent court filing, the SEC accused Binance of commingling a significant amount of customer funds, amounting to billions of dollars, and covertly transferring them to another company controlled by its founder and CEO, Changpeng Zhao.
Gurbir Grewal, the director of the SEC’s enforcement division, stated that they allege Zhao and the Binance entities were fully aware of the regulatory requirements but intentionally chose to circumvent them, thereby jeopardizing the safety and interests of their customers and investors.
It is important to note that Binance has encountered a series of legal challenges in recent months. In March, the US derivatives watchdog filed a lawsuit accusing Binance and Zhao of consistently violating its regulations.
According to the SEC, Binance and Zhao are accused of concealing the mixing of billions of dollars in customer assets. These assets were allegedly transferred to another entity, Merit Peak Limited, which is also owned by Zhao.
In a similar context, case of FTX, it is claimed that customer assets were commingled and redirected to a related company, Alameda Research, for purposes such as financing trading activities and repaying debts.
SEC Chair Gary Gensler, in a statement accompanying the charges, stated that Zhao and the Binance entities were involved in an elaborate network of deceit, conflicts of interest, non-disclosure, and deliberate evasion of the law. Gensler warned the public to be cautious and refrain from investing their hard-earned assets on these illicit platforms.
In response to the allegations, Binance issued a press release expressing disappointment regarding the U.S. Securities and Exchange Commission’s decision to file a complaint against the exchange, which sought various remedies including emergency relief.
Binance stated that they have been actively cooperating with the SEC’s investigations from the beginning and have made significant efforts to provide thorough responses to their inquiries and address their concerns.
