In 13 charges, the U.S. Securities and Exchange Commission is claiming that Binance, the world's largest crypto exchange, and its billionaire founder Changpeng Zhao operated illegally by luring U.S. customers to its unregulated international exchange, defrauded investors and violated securities laws.
“Through thirteen charges, 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,” said SEC Chair Gary Gensler in a recent release.
“This case arises from the Defendants' blatant disregard of the federal securities laws and the investor and market protections these laws provide,” the suit begins. “In doing so, Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”
Between June 2018 and July 2021, Binance earned almost $12 billion in revenue -- the majority of which came from transaction fees, the SEC alleged, adding that the overarching goal of not registering the BUSD token and Binance's BNB token was avoiding regulatory oversight.
Under Zhao's oversight, the lawsuit says, Binance “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.”
Included in the lawsuit are two Binance.US CEOs' testimony that they were deeply concerned over Zhao’s level of control. “I'm not actually the one running this company,” one CEO said in the suit. “And the mission that I believe I signed up for isn’t the mission. And as soon as I realized that, I left.”
The suit also shows Zhao prioritizing high-net-worth customers by ordering the creation of an evasion plan using a VPN service to hide their location in the U.S. and submit compliance documents to hide their country of origin.
“We do need to let users know that they can change their KYC on Binance.com and continue to use it. But the message -- the message needs to be finessed very carefully because whatever we send will be public. We cannot be held accountable for it,” Zhao allegedly told his team in 2019.
Finally, the SEC claimed that Binance took part in “wash trading” -- when a trader illegally buys an asset from an account they already control in order to inflate the price of the asset -- which it said was most damaging to investors.
Zhao took to Twitter to write: “We will issue a response once we see the complaint. Haven’t seen it yet,” then dismissed the charges by tweeting the number “4,” which translates in the Binance community to ignoring fear, uncertainty and doubt (or “FUD”).