A federal claim filed Monday by the SEC accuses Binance, the world’s largest crypto exchange, CEO Changpeng Zhao, BAM Trading, and BAM Management of lying to regulators about their operations. The regulator charged 13 defendants.
The SEC said Zhao ran Binance and BAM Trading without registering. “Zhao and Binance created BAM Management and BAM Trading in the U.S. and claimed publicly that these entities independently controlled the Binance.US platform.”
According to the petition, Zhao and Binance were “intimately involved” in controlling the trading entity’s business activities and delivering crypto-related services to Binance.US, an independent exchange.
In a Monday statement, the exchange said it actively cooperated with the SEC and recently attempted to reach a “negotiated settlement to resolve their investigations.” Still, the SEC “abandoned that process and instead chose to act unilaterally and litigate.”
The agency claimed that the platform has over 1.47 million U.S. customers in an August 2019 internal presentation. In addition, about 3,500 “VIPs”—large-volume traders—provided earnings and liquidity to the exchange.
“We are operating as a fking unlicensed securities exchange in the USA bro,” Binance’s CCO Samuel Lim told another compliance official in December 2018, according to the lawsuit.
Binance was accused of deceiving investors about its mechanisms to detect and manage manipulative trading and failing to ban U.S. investors from using its platform. The SEC also considers BNB and BUSD securities.
“Today’s action is another in a line of examples where, as with other crypto projects facing similar suits, the Commission has determined to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology,” Binance wrote in its blog post. “Unilaterally labeling certain tokens and services as securities—even ones over which other U.S. authorities have asserted jurisdiction—only compounds these problems.”
Binance and Zhao wanted to “shield themselves from U.S. regulation,” according to the SEC.
“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk,” said Gurbir S. Grewal, SEC enforcement division director.
The SEC sued Binance and Zhao a few months after the CFTC sued them for providing unregistered futures and options contracts to American traders.
