U.S. regulators sues Binance for allegedly operating a “web of deception”

The US Securities and Exchange Commission has filed over a dozen charges against Binance, world’s largest crypto exchange and its CEO Changpeng Zhao for misleading investors, operating what it calls an ‘extensive web of deception.’

The complaint was filed by the Securities and Exchange Commission (SEC) in a federal court in Washington, D.C. It included 13 charges against Binance, Zhao, and the operator of its supposedly independent U.S. exchange. The SEC alleged that Binance engaged in activities such as artificially inflating trading volumes, diverting customer funds, failing to restrict U.S. customers, and misleading investors regarding its market surveillance controls.

The SEC also claimed that Binance and Zhao, its billionaire founder and one of the crypto industry’s highest-profile moguls, secretly controlled customers’ assets, allowing them to commingle and divert investor funds “as they please.”

Binance created separate U.S. entities “as part of an elaborate scheme to evade U.S. federal securities laws,” the SEC also alleged, citing a number of practices first reported by Reuters in a series of investigations into the exchange published this year and in 2022.

From almost three years ago until June 2022, a trading firm owned and controlled by Zhao, Sigma Chain, engaged in so-called wash trading that artificially inflated the trading volume of crypto asset securities on the Binance.US platform, the SEC also alleged. Sigma Chain spent $11 million from an account on a yacht, the SEC said.

“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,” SEC Chair Gary Gensler said in a statement.

In a blog post, Binance said: “We intend to defend our platform vigorously,” adding that “because Binance is not a U.S. exchange, the SEC’s actions are limited in reach.”

“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure,” the blog post said.

In a statement, Binance said it had “actively cooperated” with the SEC “from the start” and “respectfully disagree” with the SEC’s allegations. Binance had been trying to find a “reasonable resolution” with the SEC but the agency “at the eleventh hour” issued new requests and went to court. Binance said the SEC’s actions appeared to be an effort to “claim jurisdictional ground from other regulators.”

Binance.US, which is ultimately controlled by Zhao, said in a tweet that the lawsuit was “unjustified by the facts, by the law, or by the Commission’s own precedent.”