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What’s the Impact on Crypto? 13 Charges Against Binance

Yuuma Nakamura by Yuuma Nakamura
June 6, 2023
in Binance, Crypto, Stocks
0

Home » What’s the Impact on Crypto? 13 Charges Against Binance

The Securities and Exchange Commission (SEC) has recently filed 13 charges against Binance Holdings Ltd., the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao. The charges include a variety of securities law violations, ranging from operating unregistered national securities exchanges, broker-dealers, and clearing agencies to misleading investors about their risk controls and trading activities. In this article, we will provide a detailed overview of the charges and their implications for the cryptocurrency industry.

Also read: SEC punched Crypto. Bitcoin price losing -3.01%…Are the Whales manipulating?

1. Overview of the Charges

The SEC’s complaint against Binance and Changpeng Zhao includes the following allegations:

1.1. Operating Unregistered Exchanges, Broker-Dealers, and Clearing Agencies

The SEC alleges that Binance and its U.S.-based affiliate, BAM Trading Services Inc., operated unregistered national securities exchanges, broker-dealers, and clearing agencies, earning at least $11.6 billion in revenue from transaction fees from U.S. customers. The complaint also alleges that Binance and Zhao are responsible for the registration violations as control persons.

Also read: Best Cryptocurrency Exchanges | 2023.

1.2. Unregistered Offer and Sale of Securities

Binance is charged with the unregistered offers and sales of its own crypto assets, including BNB, BUSD, and crypto-lending products. BAM Trading is charged with the unregistered offer and sale of Binance.US’ staking-as-a-service program. The complaint notes that Binance secretly has control over assets staked by U.S. customers in BAM’s staking program.

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1.3. Misleading Investors and Market Manipulation

The complaint alleges that BAM Trading and BAM Management misled Binance.US customers and equity investors concerning the existence and adequacy of market surveillance and controls to detect and prevent manipulative trading on the Binance.US platform’s crypto asset trading volumes. It further alleges that wash trading was largely perpetrated by Sigma Chain, a trading firm owned by Zhao, demonstrating the falsity of statements BAM Trading made about its market surveillance and controls.

1.4. Failure to Restrict U.S. Investors from Accessing Binance.com

The SEC claims that Zhao and Binance created BAM Management and BAM Trading as part of an elaborate scheme to evade U.S. federal securities laws. The complaint alleges that, in reality, Zhao and Binance maintained substantial involvement and control of the U.S. entity, allowing and concealing many high-value U.S. customers’ continued access to Binance.com.

2. Details of the Allegations

2.1. Deceptive Business Practices

The SEC alleges that Binance and Zhao engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. According to the complaint, they misled investors about their risk controls, corrupted trading volumes, and actively concealed information about the platform’s operations, manipulative trading activities, and the custody of investor funds and crypto assets.

2.2. Control Over Customer Assets

The complaint claims that Zhao and Binance exercised control over their platforms’ customers’ assets, allowing them to commingle customer assets or divert customer assets as they please. This includes diverting assets to Sigma Chain, an entity owned and controlled by Zhao. The SEC further alleges that billions of dollars of investor assets were commingled and sent to a third party, Merit Peak Limited, also owned by Zhao.

2.3. Evasion of U.S. Securities Laws

The SEC claims that Binance and Zhao attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes, allowing them to keep high-value U.S. customers on their platforms. The public was warned to beware of investing in these unlawful platforms.

2.4. Market Manipulation

The complaint alleges that Binance and Zhao used market-making companies that they controlled to inflate trading prices and profit off their customers. Merit Peak and Sigma Chain were both beneficially owned by Zhao and collected “tens of billions of dollars” of customer money. These firms allegedly mixed customer funds with Binance’s money and engaged in “wash trading,” trading with themselves to artificially prop up the price of crypto assets.

3. Binance’s Response

Binance has expressed disappointment in the SEC’s decision to file a complaint and asserts that it has actively cooperated with the SEC’s investigations and engaged in good-faith discussions to reach a negotiated settlement. The company maintains that all user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and they will vigorously defend against any allegations to the contrary.

4. Implications for the Crypto Industry

The SEC’s charges against Binance and its founder could have far-reaching implications for the cryptocurrency industry. As the largest crypto exchange in the world, Binance’s legal troubles may impact the market and cause increased regulatory scrutiny on other crypto companies.

4.1. Increased Regulatory Scrutiny

The SEC’s charges may lead to increased regulatory scrutiny on other cryptocurrency exchanges, particularly those that have listed the same tokens as Binance. This could potentially place other major U.S. exchanges, such as Coinbase and Kraken, in the SEC’s crosshairs.

4.2. Market Impact

The news of the SEC’s charges against Binance has already caused significant market volatility, with Bitcoin and other major cryptocurrencies experiencing sharp declines. Binance’s native token, BNB, has also seen a considerable drop in value. If the legal battle between the SEC and Binance continues, it could lead to further market instability and uncertainty in the crypto industry.

4.3. Changes in the Crypto Landscape

As a result of the SEC’s actions against Binance, other crypto exchanges may be forced to reevaluate their business practices and compliance with U.S. securities laws. This could lead to changes in the crypto landscape, such as increased transparency, stronger risk controls, and improved investor protection.

5. Investor Reactions

Following the SEC’s charges against Binance, investors have reportedly withdrawn around $790 million from Binance and its U.S. affiliate, Binance.US, within 24 hours. This sudden withdrawal indicates a loss of confidence in the exchange and apprehensions about the future of the platform as it faces legal challenges.

6. Binance’s Legal Headaches

The SEC’s complaint is not the first legal issue Binance has faced. In March, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance and Changpeng Zhao for allegedly operating an “illegal” exchange and a “sham” compliance program. Zhao has dismissed the CFTC’s claims as an “incomplete recitation of facts.”

7. Future of Binance and Crypto Regulation

The outcome of the legal battle between Binance and the SEC will likely have significant implications for the future of Binance and the broader cryptocurrency industry. It remains to be seen whether Binance will be able to successfully defend itself against the SEC’s charges and continue its operations as the world’s largest cryptocurrency exchange.

Furthermore, the SEC’s actions against Binance may potentially signal a more aggressive regulatory stance towards the cryptocurrency industry, with increased scrutiny on other major exchanges and crypto companies. This could lead to a push for greater compliance with U.S. securities laws, ultimately shaping the future of cryptocurrency regulation.

In conclusion, the SEC’s charges against Binance and Changpeng Zhao mark a critical juncture in the ongoing relationship between the cryptocurrency industry and regulatory authorities. As the legal battle unfolds, the outcome may have far-reaching implications for the future of Binance, its users, and the broader cryptocurrency landscape. It serves as a reminder for crypto exchanges and companies to ensure compliance with securiti

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Yuuma Nakamura

Yuuma Nakamura

Yuuma Nakamura is a staff writer covering crypto, blockchain, metaverse, tokens, stablecoins, bitcoin, ethereum and other crypto technology for FintechZoom. Contact: [email protected]

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