US regulator sues crypto exchange Binance for violating laws

The largest cryptocurrency exchange platform, Binance, is facing legal action by the United States Securities and Exchange Commission (SEC). On Monday, the SEC accused Binance of conducting financial transactions and providing services unlawfully without the necessary authorizations.

Changpeng Zhao, the co-founder and chief executive of Binance, has been accused of deception, conflict of interest, among other allegations.

The SEC tweeted about its decision to file charges against Binance Holdings Ltd. (Binance), U.S.-based independent affiliate, BAM Trading Services Inc., and their founder, Changpeng Zhao, with a variety of securities law violations.

In the tweet, the regulatory body shared a seemingly incriminating quote from CCO Noah Perlman to another Binance compliance officer in December 2018. "We are operating as a fking unlicensed securities exchange in the USA bro," it said.

The agency accused Zhao of secretly controlling Binance.US as part of a "web of deception" to evade laws and said that until at least December 2020, Binance.US staff "did not have any ability to control" the company's bank accounts.

Zhao and Binance publicly claimed that US customers were barred from transactions on Binance.com, but the platform "secretly" allowed high-value customers to keep trading, the SEC said.

What do the records say

According to an exclusive Reuters news agency report, bank records reveal that Guangying Chen, a senior executive at Binance, was the primary operator of five bank accounts associated with Binance.US — the U.S. affiliate of the cryptocurrency exchange.

These accounts, including one holding funds from American customers, were authorized for operation by U.S. lender Silvergate Bank in 2019 and 2020, as per records.

This authorization granted Chen and her team the ability to transfer funds within these bank accounts. Communication within the company indicates that employees at Binance.US had to seek approval from Chen's team even for basic financial transactions, such as covering the firm's payroll.

These newly revealed details shed light on the extent of Binance's control over Binance.US, despite claims from both entities that they operated independently.

The previously undisclosed bank records and messages demonstrate how Binance's management exerted influence over the financial affairs of the U.S. affiliate, utilizing its access to Silvergate bank accounts.

What has the SEC found

SEC chair Gary Gensler stated that through thirteen charges, they have uncovered an extensive pattern of deceit, conflicts of interest, lack of transparency, and deliberate evasion of the law by Zhao and Binance entities. According to the SEC, investors were misled regarding risk controls and trading volumes.

Gurbir Grewal, director of the SEC's division of enforcement, added, "We assert that Zhao and the Binance entities were not only aware of the regulatory requirements but also intentionally chose to bypass them, jeopardizing their customers and investors, all in pursuit of maximizing their own profits."

Following the announcement, major cryptocurrencies such as Bitcoin and Ether experienced significant declines.

Binance.US spokesperson, Christian Hertenstein, said that since the company’s current chief executive, Brian Shroder, took over in late 2021, "no one other than Binance.US officials have had control or access to Binance.US accounts."

This legal action comes after years of investigation by US authorities. In March, the Commodity Futures Trading Commission (CFTC) had already filed a lawsuit against Binance for violating rules in the US market.