SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao

The Securities and Exchange Commission (SEC) lodged accusations against Binance Holdings Ltd., BAM Trading Services Inc., and their founder Changpeng Zhao. Binance Holdings operates the world’s largest cryptocurrency trading platform, Binance.com, and along with BAM Trading, the United States-based affiliate, also runs Binance.US.

The SEC asserts that Zhao and Binance made misleading public statements regarding the restriction of U.S. customers from Binance.com. Contrary to their statements, they allegedly manipulated their regulations to permit high-value U.S. clientele to continue trading on the Binance.com platform. They also allegedly misrepresented that Binance.US, created for U.S. investors, was an autonomous trading platform while maintaining secret control of its operations.

The SEC claims that Zhao and Binance exerted control over customer assets, allowed asset pooling, or diverted customer assets at their discretion, including to Sigma Chain, a company owned by Zhao. Moreover, BAM Trading and BAM Management US Holdings, Inc. are accused of deceiving investors about the absence of trading controls on the Binance.US platform. The SEC claims that Sigma Chain executed deceptive trades that falsely boosted the platform’s trading volume.

The SEC has also brought up serious registration violations under federal securities laws:

1. Binance and BAM Trading are charged with operating unregistered national securities exchanges, broker-dealers, and clearing agencies.
2. Binance and BAM Trading are accused of offering and selling unregistered crypto assets of Binance, including their exchange token (BNB), stablecoin (Binance USD, or BUSD), crypto-lending products, and a staking-as-a-service program.
3. Zhao is held responsible for Binance’s and BAM Trading’s operation of unregistered national securities exchanges, broker-dealers, and clearing agencies.

SEC Chair Gary Gensler stated, “Zhao and Binance entities are alleged to have engaged in an intricate network of deception, conflicts of interest, lack of disclosure, and blatant evasion of the law. They are accused of misguiding investors about risk controls and inflating trading volumes while obscuring who was running the platform, the manipulative trading of its associated market maker, and the custodianship of investor funds and crypto assets.”

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, warned that Zhao and Binance entities consciously disregarded regulatory rules, exposing their customers and investors to unnecessary risks to increase their profits.

The SEC has filed a complaint in the U.S. District Court for the District of Columbia. They assert that Binance.com and Binance.US, under Zhao’s control, operated as exchanges, brokers, dealers, and clearing agencies since at least July 2017, generating revenue from transaction fees from U.S. customers among other sources. They should have been registered accordingly.

Furthermore, the SEC alleges that Binance secretly controlled assets staked by U.S. customers in BAM’s staking program. The SEC also asserts that Zhao and Binance orchestrated an elaborate scheme to circumvent U.S. federal securities laws.

The SEC alleges that BAM Trading and BAM Management misled customers and equity investors about the presence and effectiveness of market surveillance and controls to detect and prevent manipulative trading on the Binance.US platform. The complaint asserts that Zhao’s firm Sigma Chain largely conducted strategic and targeted wash trading.