Binance, the world’s largest crypto exchange, operated illegally in the US, the US Securities and Exchange Commission alleges in a new lawsuit. Changpeng Zhao, the exchange’s founder, was named in the suit as well.
“Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk,” the suit begins. It alleges that Binance and Zhao illegally solicited investors, engaged in multiple unregistered investment schemes, and “defrauded equity, retail, and institutional investors about purported surveillance and controls over manipulative trading on the Binance.US Platform, which were in fact virtually nonexistent.”
“We will issue a response once we see the complaint,” Zhao wrote on Twitter. “Haven’t seen it yet.”
In the suit, the SEC says that Binance acted as a broker-dealer, exchange, and clearing agency without properly registering. And the BUSD token, a stablecoin issued by Paxos, as well as Binance’s BNB token, were singled out by the agency as securities that lawfully should have been registered with the agency. The overarching goal was avoiding regulatory oversight, the SEC alleges.
Binance has long claimed that Binance.US operated separately from the main exchange. While publicly claiming that Binance itself didn’t serve people in the US, Zhao and others at Binance directed valuable investors to bypass the controls meant to keep them from using the platform, the SEC alleges. (This is not the first time we’ve heard this allegation.)
The suit also claims that while Binance told investors it was implementing controls on market manipulation, it didn’t actually do that. “Thus, Defendants failed to satisfy basic requirements of registered exchanges—to have rules designed to prevent fraudulent and manipulative acts and the capacity to carry out that purpose,” the suit says. In particular, there were no monitors for “wash trading,” when a trader illegally buys an asset from an account they already control, manipulatively inflating the price of the asset.
Updated 11:54AM ET: Adds Zhao’s comment.