Binance and Changpeng ‘CZ’ Zhao Face Multiple SEC Charges

The SEC accused Binance — the world’s largest cryptocurrency exchange — of mishandling customer funds and failing to register under securities laws in a court filing released on Monday, June 5. 

The lawsuit also claims that Binance — as well as BAM Trading and Binance.US — engaged in the unlawful sale of securities and failed to register under the Exchange Act.

The SEC alleges that “First, Binance and BAM Trading, under Zhao’s leadership and control, have unlawfully offered three essential securities market functions—exchange, broker-dealer, and clearing agency—on the Binance Platforms without registering with the SEC. Acutely aware that U.S. law requires registration for these functions, Defendants nevertheless chose not to register, so they could evade the critical regulatory oversight designed to protect investors and markets.”

The SEC claims that BAM Trading’s staking program is an investment contract, which falls under its definition of a security.

Both Binance and BAM Trading “have engaged and continue to engage in unregistered offers and sales of crypto asset securities, effecting unregistered crypto asset securities transactions on the Binance Platforms.” 

​​The SEC also claims Binance and CEO Changpeng ‘CZ’ Zhao were “intimately involved in directing BAM Trading’s U.S. business operations.”

“Zhao directed Binance to assist certain high-value U.S. customers in circumventing those controls and to do so surreptitiously because—as Zhao himself acknowledged—Binance did not want to ‘be held accountable’ for these actions,” the filing stated.

The lawsuit claims that, through his social media usage, both Zhao and Binance “actively solicited” US investors, and Binance employees were asked to retain US investors on the Binance.com Platform despite Binance’s June 2019 announcement that “it would no longer serve U.S. investors.”

The SEC further alleges in the complaint that BNB, the native token of the Binance Smart Chain, is an unregistered security, and states the various Binance staking programs are also not in compliance with its registration requirements.

“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk,” said Gurbir S. Grewal, director of the SEC’s enforcement division.

When reached for comment, Binance.US pointed Blockworks to its tweet on the lawsuit. 

“While we remain open to a productive compromise that protects our customers and their digital assets, with this latest action taken against our business and following similar actions taken against Coinbase, Gemini, Kraken, and other market participants, the SEC seeks a near eradication of our industry,” the tweet said.

“The SEC’s choice is disheartening for Binance, its users, and the industry as a whole.  However, this action will not stop us from continued robust collaboration with other regulators and policymakers across the globe, and we will continue to vigorously defend our business and this technology,” Binance told Blockworks in an emailed statement.

Updated June 5, 2023 at 1:25 pm ET: Added statement from Binance.

Updated June 5, 2023 at 12:49 pm ET: Added reply from Binance.US.

---

Get the news in your inbox. Explore Blockworks newsletters:

• The Breakdown: Decoding crypto and the markets. Daily.
• 0xResearch: Alpha in your inbox. Think like an analyst.