The United States regulators instituted a lawsuit against Binance, the globe's leading cryptocurrency exchange, and its CEO Changpeng Zhao on Monday, citing allegations of orchestrated deception. This legal action, one of many recent regulatory pressures faced by Binance, sent Bitcoin to a nearly three-month low.
The Securities and Exchange Commission (SEC) presented the lawsuit in a federal court in Washington, D.C., laying out 13 accusations against Binance, Zhao, and the supposed independent U.S. exchange operator. Among the allegations were manipulation of trading volumes, misuse of customer funds, lack of effective restrictions on U.S. customers, and misleading investor information regarding market surveillance controls.
The SEC further alleges that Binance and its billionaire CEO Zhao clandestinely held control over customer assets, allowing them to mishandle investor funds "as they please."
According to the SEC, Binance established separate U.S. entities as part of a "complex scheme to circumvent U.S. federal securities laws." The commission pointed to practices exposed by Reuters in its investigative reports in 2022 and earlier this year.
The SEC also stated that from nearly three years ago until June 2022, Sigma Chain, a trading firm owned and controlled by Zhao, engaged in 'wash trading' that artificially boosted the trading volume of crypto asset securities on the Binance.US platform.
SEC Chair Gary Gensler stated, "We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law."
In response, Binance posted a blog saying, "We intend to defend our platform vigorously," maintaining that the SEC's jurisdiction was limited as Binance is not a U.S.-based exchange. They reassured users that all assets on Binance and Binance.US platforms were safe and secure.
Binance.US, under Zhao's ultimate control, tweeted that the lawsuit was unsupported by facts, law, or the Commission's own precedent.
This legal action precipitated a drop in cryptocurrency prices, with Bitcoin falling 6% to a nearly three-month low. Binance's own cryptocurrency BNB also dipped over 5%.
The lawsuit's allegations could significantly impair Binance, a dominant force in crypto trading, processing about $65 billion a day in trades and holding up to 70% of the market last year.
Ed Moya, senior market analyst at Oanda, cautioned, "I think that there's a big risk here that this could be crippling to Binance."
This lawsuit adds to Binance's growing list of legal challenges, which include a lawsuit from the U.S. Commodity Futures Trading Commission (CFTC) in March for allegedly operating an illegal exchange and a sham compliance program, and an ongoing Justice Department probe into possible money laundering and sanctions violations.
