The US Securities and Exchange Commission (SEC) has filed a lawsuit against Binance.US, the American affiliate of the world’s largest crypto exchange Binance, and its founder Changpeng Zhao (CZ), accusing them of violating US securities laws and putting customer funds at risk. The SEC is seeking to freeze billions of dollars of assets on the crypto platform during the legal battle, which could have serious consequences for Binance.US’s operations and customers.
According to the SEC’s complaint, Binance.US and CZ have been secretly allowing US customers to trade on the unregulated Binance.com platform, while publicly claiming that they were restricted. The SEC also alleges that Binance.US and CZ have been controlling the Binance.US platform behind the scenes, despite claiming that it was a separate and independent entity. Moreover, the SEC claims that Binance.US and CZ have been commingling customer assets with their own and diverting them to a third party owned by CZ, called Sigma Chain.
The SEC charges Binance.US and CZ with operating unregistered securities exchanges, broker-dealers, and clearing agencies; offering and selling unregistered securities, including Binance’s own crypto tokens; and misleading investors and regulators about their trading controls and oversight. The SEC’s chair Gary Gensler said that “Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
Binance.US has filed a motion to oppose the SEC’s request for an asset freeze, arguing that it would cripple its business and harm its customers. Binance.US said that its customer assets are safe and that there is no need for the “draconian relief” sought by the SEC. However, one of Binance.US’s banking partners has already frozen its account and another has announced that it will stop holding its assets from June 14.
The lawsuit is the latest in a series of regulatory actions against crypto companies in the US and around the world. Binance has faced scrutiny from authorities in several countries, including Germany, Japan, Canada, and the UK. The SEC has also sued Coinbase, the largest US crypto exchange, for failing to register with the agency.
The case is expected to have significant implications for the crypto industry and investors, as it could set a precedent for how US securities laws apply to crypto platforms and tokens. The hearing on the SEC’s motion for an asset freeze is scheduled for Tuesday before Judge Amy Berman Jackson in Washington federal court.