The US Securities and Exchange Commission (SEC) has filed multiple charges against Binance, the largest cryptocurrency exchange globally, as well as its founder Changpeng Zhao. The SEC claims that both Binance and Zhao combined billions of dollars in user funds and transferred them to a European company controlled by Zhao. According to the US regulator, Binance and its founder intentionally bypassed their own controls to enable wealthy US investors and customers to continue trading on Binance's unregulated international exchange. An executive within the company reportedly admitted that they were operating as an unlicensed securities exchange in the United States.
The complaint suggests that Binance established Binance.US as a means to shield the main company and Zhao himself from law enforcement targets, while also insulating Binance. Former CEOs of Binance.US, Catherine Coley and Brian Brooks, expressed deep concerns about Zhao's level of control. One former CEO stated that the company's mission was not aligned with their initial understanding, leading to their departure.
The SEC complaint states that Binance generated $11.6 billion in revenue primarily from transaction fees between June 2018 and July 2021. The exchange has allegedly made deliberate efforts to attract US customers, with Zhao's direction and control. Despite being aware that tens of thousands of customers were from the United States, Binance failed to take appropriate action, despite federal laws prohibiting the unregistered offer and sale of securities.
The SEC further alleges that Zhao orchestrated an evasion plan for high-net-worth customers, utilising VPN services to conceal their US locations and submitting compliance documents to obscure their origins. Binance employees were reportedly involved in encouraging users to evade the exchange's "know your customer" systems through VPNs.
The SEC also claims that Binance and Zhao utilised market-making companies under their control, such as Merit Peak and Sigma Chain, to inflate trading prices and profit from customers. These firms, which acted as market makers, received billions of dollars from customers, mixed customer funds with Binance's funds, and engaged in wash trading to manipulate the prices of cryptocurrencies.
The SEC's allegations were met with a dismissive response from Zhao, who used the phrase "4" on Twitter, a popular expression within the Binance community to disregard fear, uncertainty, and doubt (FUD).
The SEC's charges follow similar ones by the Commodity Futures Trading Commission, which accused Binance of failing to prevent US customers from accessing its services.
Binance expressed disappointment with the SEC's complaint in a subsequent blog post, claiming to have cooperated extensively with the SEC's investigations and engaged in good-faith discussions to resolve the matter.
SEC Chair Gary Gensler described the defendants' actions as a "blatant disregard" for federal law, stating that Zhao and Binance entities were involved in a web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.
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