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  • SEC initiates legal action against Binance over allegations of engaging in unregistered securities operations

    Posted on 2023-06-06 05:13:32
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    The District Court for the District of Columbia witnessed a lawsuit filed by the United States Securities and Exchange Commission (SEC) against Binance, its U.S. platform, and CEO Changpeng Zhao (CZ) on June 5.

    The SEC brought forth 13 charges against Binance, which encompassed accusations of conducting unregistered sales and offers involving BNB tokens, Binance USD tokens, the Simple Earn and BNB Vault products, as well as its staking program. Furthermore, the lawsuit alleges that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency, and also claims that Binance.US and BAM Trading, the legal entity of Binance.US, neglected to register Binance.US as an exchange, broker, and clearing agency. CZ has been named as a defendant due to his role as a "controlling person."

    According to the lawsuit, "Defendants have enriched themselves by billions of U.S. dollars while placing investors' assets at significant risk. [...] Defendants have engaged in multiple unregistered offers and sales of crypto asset securities and other investment schemes." The suit also states that BAM Trading and BAM Management deceived equity, retail, and institutional investors regarding the purported surveillance and controls over manipulative trading on the Binance.US Platform, which were virtually non-existent.

    Among the allegations, it is claimed that Binance failed to prohibit U.S. investors from using Binance.com, and that Binance.US was involved in wash trading through its undisclosed primary trading firm, Sigma Chain, owned by CZ.

    Moreover, the lawsuit asserts that funds from Binance and Binance.US were mingled in an account controlled by Merit Peak Limited, associated with CZ. These charges align with complaints previously filed by the Commodity Futures Trading Commission in March, which CZ denied in a detailed blog post.

    SEC Chair Gary Gensler commented, "As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied."

    The lawsuit contends that the tokens traded on the Binance exchange are considered securities. These tokens include BNB, BUSD, Solana, Cardano, Polygon, Filecoin, Cosmos, The Sandbox, Decentraland, Algorand, Axie Infinity, and COTI.

    Both Binance and Binance.US responded separately to the lawsuit. Binance.US tweeted that the SEC's claims are another instance of "regulation by enforcement," and they intend to vigorously defend themselves as they consider the suit baseless.

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