SEC: Crypto firm Binance misused customer funds
Feds also allege lying to regulators, investors about asset risk on its exchange
The Securities and Exchange Commission has accused Binance, the world’s largest cryptocurrency exchange, of mishandling customer funds as well as lying to regulators and investors about its operations in a sweeping case filed in federal court Monday.
The Wall Street regulator said Binance had been mixing billions of dollars in customer funds and secretly sending them to a separate company called Merit Peak Limited, which is controlled by Binance’s founder, Changpeng Zhao.
The charges included misleading investors about the adequacy of its systems to detect and control manipulative trading and about its efforts to restrict U.S. investors from trading on its unregulated platform.
Regulators said in the lawsuit, filed in U.S. District Court in Washington, that Binance and Zhao “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”
Regulators have long seen Binance as a major target in their quest to bring to heel an industry built around an explicitly anti-government ethos and force major players in the space to come into compliance with U.S. laws.
In its court filing, the SEC cited a 2018 email from Binance’s chief compliance officer saying “we do not want (Binance.com) to be regulated ever.”
Binance was already under increasing pressure. The Justice Department is investigating the exchange for money-laundering violations.
The nation’s top securities regulator filed 13 charges against Binance and Zhao, better known in the crypto world as “C.Z.” The SEC is taking action a little over a month after the Commodities Futures Trading Commission filed its own civil enforcement action against Binance and Zhao.
The lawsuit lays out the extent to which the firm’s owners knew of the alleged legal violations: “Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as (an) ... unlicensed securities exchange in the USA bro.”
SEC Chair Gary Gensler said in a statement that Zhao and Binance “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
In a social media post, Binance said that it has been cooperating with the SEC’s investigation but said that the agency “chose to act unilaterally and litigate.”
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously,” the company said in a Twitter post.
The moves against Binance and Zhao come months after the filing of criminal charges against Sam Bankman-Fried, the founder of FTX, which had been a big crypto trading rival until FTX imploded and filed for bankruptcy in November.