Federal regulators accused Binance, the world's largest crypto exchange, and its chief executive of violating securities laws and making false statements to investors, the latest volley in Washington's crackdown on the cryptocurrency industry and its biggest players.
The Securities and Exchange Commission outlined 13 civil charges in the lawsuit filed Monday. Regulators accuse Binance of unlawfully engaging in unregistered offers and sales of crypto assets and failing to follow basic rules designed to prevent fraudulent and manipulative acts such as self-dealing.
"Defendants have enriched themselves by billions of U.S. dollars while placing investors' assets at significant risk," the SEC said in the complaint
The SEC is seeking restitution for victims. The agency also wants to permanently bar CEO Changpeng Zhao from acting as an officer or director of any issuer whose securities are registered with the commission.
The length of the complaint, the number of charges, and the inflammatory nature of the evidence are all reminders that the SEC regulatory onslaught against crypto continues to grow exponentially, said John Reed Stark, former chief of the SEC's office of internet enforcement.
"These are very serious allegations," he said. "These are not technical regulatory parking tickets. To me, this is a systemic and well-orchestrated scheme."
Since the start of the year, the SEC has targeted Kraken, Genesis and Gemini Trust. Meanwhile, Coinbase disclosed in March that it's been warned by the regulator that it might be violating securities laws, signaling a lawsuit may be imminent.
In a statement on the company's blog, Binance said it intends to defend itself "vigorously," adding that "the SEC's actions undermine America's role as a global hub for financial innovation and leadership."
Binance contends that the SEC has adopted an overly aggressive regulatory stance, using the "blunt weapons of enforcement and litigation" that isn't well-suited to the demands of the "complex technology" that it operates in. Binance said that the commission should have done more to engage with the company. "The SEC's real intent here, instead, appears to be to make headlines," Binance said.
The cryptocurrency market reeled after the SEC filing. Bitcoin was down more than 5 percent Monday, to below $26,000 - a level not seen since March.
Financial regulators allege that the company developed a plan to evade legal scrutiny while continuing to profit from American investors. The company and Zhao understood that they were in violation of several laws, the commission alleged, detailing what financial regulators described as a scheme to surreptitiously evade enforcement.
To bolster its case, the commission in its complaint repeatedly cited Binance's internal communications. For example, the company's chief compliance officer admitted in 2018 that, "We do not want [Binance].com to be regulated ever." Later that year, the same executive told another compliance officer, "We are operating as a . . . unlicensed securities exchange in the USA bro."
Zhao is a prominent figure in the crypto world. Last year, his rivalry with now-disgraced FTX founder Sam Bankman-Fried came to a head when Zhao cast doubt on FTX's stability, which helped fuel a sell-off in the company's tokens and ignited a frenzy that led to FTX's collapse and criminal charges against Bankman-Fried.
John Ghose, a former federal cybercrime prosecutor who specialized in crypto-related crime, said that there are some interesting parallels between this case and the SEC's suit against Bankman-Fried, including allegations of improper commingling of customer and company funds and false statements about compliance controls that were actually non existence. "One question is whether there is common evidence and witness testimony between the SEC's investigation of SBF and Binance/Zhao, and whether the case against SBF is helping to build a case against Binance," he said.
The suit follows examinations by federal prosecutors probing into U.S. hedge funds' dealings with Binance as part of a long-running investigation into potential violations of money-laundering rules.
WASHINGTON POST