According to the S.E.C., the largest cryptocurrency exchange in the world, Binance, has been accused of commingling customer funds amounting to “billions of dollars” and covertly transferring them to a separate entity under the control of Binance’s founder, Changpeng Zhao.
In a comprehensive lawsuit filed in federal court on Monday, the Securities and Exchange Commission (S.E.C.) has leveled serious allegations against Binance, the world’s largest cryptocurrency exchange. The S.E.C. claims that Binance mishandled customer funds and engaged in deceptive practices towards regulators and investors.
According to the S.E.C., Binance mixed a significant amount of customer funds, reaching billions of dollars, and covertly transferred them to an entity named Merit Peak Limited. This separate company is under the control of Binance’s founder, Changpeng Zhao.
The charges brought forth by the S.E.C. encompass misleading investors regarding the effectiveness of Binance’s systems in detecting and controlling manipulative trading activities. Additionally, regulators assert that Binance failed to take adequate measures to restrict access to its unregulated exchange by U.S. investors.
These charges against the largest cryptocurrency exchange serve as the latest actions taken by U.S. regulators and prosecutors to impose regulations and ensure compliance with U.S. laws within the cryptocurrency trading realm, which has often been likened to the “Wild West.”
Binance was already facing mounting pressure as it finds itself entangled in various legal issues. The Justice Department is currently investigating the exchange for potential money-laundering violations. Moreover, Binance suffered a setback when Mazars, its external auditing firm, announced its discontinuation of business with cryptocurrency companies late last year. Additionally, the company has witnessed a decline in its control over the cryptocurrency market.
In an effort to enhance its reputation, Binance has recently made several key hires in the compliance department, including a former federal prosecutor who now leads its compliance operations.
Gurbir S. Grewal, the director of the S.E.C.’s enforcement division, stated, “We allege that Zhao and the Binance entities not only had knowledge of the regulatory requirements but also deliberately chose to circumvent them, thereby jeopardizing their customers and investors.”
The Securities and Exchange Commission (S.E.C.), the nation’s leading securities regulator, has filed 13 charges against both Binance and Changpeng Zhao, popularly known as “C.Z.” in the crypto community. The S.E.C.’s action comes a little over a month after the Commodities Futures Trading Commission (C.F.T.C.) initiated its own civil enforcement action against Binance and Mr. Zhao.
Representatives from Binance did not provide an immediate comment on the matter.
The C.F.T.C. is seeking a lifetime ban on Mr. Zhao from engaging in business activities falling within its jurisdiction, and it also aims to permanently exclude Binance from operating in the United States.
The actions taken against Binance and Mr. Zhao follow several months after the criminal charges were brought against Sam Bankman-Fried, the creator of FTX. FTX, once a significant competitor to Binance in the realm of crypto trading, faced a downfall, ultimately filing for bankruptcy last November.
