SEC SUES BINANCE AND FOUNDER, CHANGPENG ZHAO. THE RESULT OF A REAL CONCERN FOR INVESTORS OR A CAMPAIGN TO HINDER MASS ADOPTION OF THE DIGITAL ECONOMY?
On the 5th of June 2023, the crypto community was alarmed by the announcement of a lawsuit initiated by the US SEC against Binance and its founder Changpeng Zhao, fondly called CZ Binance in the crypto space. The lawsuit contained 13 charges. This announcement further accelerated the downward move of an already bearish market yesterday. The markets somewhat recovered but concerns are growing and investors want to know if there is any real reason to be worried about the lawsuit.
The Securities and Exchange Commission charged Binance Holdings Ltd. which manages the largest crypto asset trading platform in the world, Binance.com; BAM Trading Inc. which, alongside Binance, operates the crypto asset trading platform, Binance.US; and their founder, Changpeng Zhao, with a number of securities law violations.
Besides other things, the SEC claims that, while Zhao and Binance publicly said that U.S. customers were not allowed to transact Binance.com, Zhao and Binance in reality subverted their own controls to secretly permit some U.S. customers to continue trading activities on the Binance.com platform. Further, the SEC claims that, while Zhao and Binance publicly claimed that Binance.US was created as a separate trading entity for U.S. investors, Zhao and Binance secretly operated and managed the Binance.US platform’s activities behind the scenes.
The SEC also claims that Zhao and Binance have control of the platforms’ customers’ assets, permitting them to mix customer assets or divert customer assets as they please, including to an entity Zhao Changpeng owned called Sigma Chain. The SEC’s complaint further alleges that BAM Trading and BAM Management US Holdings, Inc. decieved investors about non-existent trading controls over the Binance.US platform.
Another serious allegation The Complaint also charged was violations of important registration-concerned provisions of the federal securities laws which includes:
Binance and BAM Trading with operating unregistered national securities exchanges, firms and clearing agencies;
Binance and BAM Trading with the unlicensed offer and sale of Binance owned crypto assets, of which BNB, the exchange token, and BUSD, a stablecoin, certain crypto lending products,a stake service program and,
CZ Binance as the one in charge of Binance and BAM Trading’s operation of the unregistered national securities exchanges, firms and clearing agencies.
"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.
The SEC complaint also identified 10 tokens it deemed to be unregistered crypto asset securities.
The target list includes some well-known names in crypto: $SOL , $ADA, $MATIC, $FIL, $ATOM, $SAND, $MANA, $ALGO, $AXS, and $COTI.
Binance immediately put out a response to the lawsuit. The crypto giant said it was disappointed with the SEC actions to file a lawsuit. It claimed to have actively cooperated with the SEC's investigations from the start and worked hard to answer the regulatory body's questions and address their concerns. Binance also claimed to have engaged recently in extensive good-faith discussions to reach a negotiated settlement to resolve the issues. But despite such efforts, the SEC decided to abandon that process and instead chose to act unilaterally and litigate.
Binance also said it fully intends to defend itself vigorously against the SEC charges. It also claimed the SEC’s refusal to productively engage with its team is just another example of the Commission’s misguided and deliberate refusal to provide much-needed clarity and guidance to the crypto space. The Binance team also said that the SEC unilaterally labeling certain tokens and services as securities – including the ones over which other U.S. authorities have affirmed jurisdiction only compounds the problems
The Binance team said in the press release that any allegation that users' assets and funds on the Binance.US platform is at risk are simply wrong and there's no reason for the SEC to act in that manner considering the ample time the Commission's staff had to conduct an appropriate investigation. All users' assets on Binance and Binance affiliate platforms are safe and secure.
The crypto giant also said the entire case was a U.S. regulatory tug-of-war and the SEC’s actions appear to be an effort to hastily claim jurisdictional ground from other regulators – and investors safety was not the motivating factor behind the case. Due to the size and reputation of Binance the world over, it's too easy a target for such power drag.
"We will continue to cooperate with regulators and policymakers in the U.S. and across the globe because that is the right thing to do, '' said the Binance team
The reactions of the crypto community has largely been in support of Binance. The SEC over time, has fallen out of favor with the people due to its unfriendly stance on the crypto space. It appears to be part of a larger campaign to hinder the mass adoption of the digital economy. Data yesterday shows no large scale withdrawals from the platform. Support keeps coming in for Binance and if anything , the SEC has further villainized itself with its actions.
A somewhat comical twist to this case is that Gary Gensler who is the chairman of SEC had in the past shown massive support and showered praise for $ALGO prompting a large number of people to buy the asset. The naming of $ALGO in the list of "unregistered securities" Binance traded raised concerns over the motives and real intentions of Mr Gensler. Surely a chairman of a regulatory body would not consider it wise to promote an "unregistered" security. The inconsistencies are of serious concerns and peering deeper into it we might find another deeper motive behind the case.
When comparisons are made on the way the traditional financial sectors are treated and the strict and unfriendly stance the SEC has with crypto enterprises, it is clear there is a bias so to speak. The words of Ben Todar echo the sentiments of many when he said: "The SEC's attack on Binance not only undermines the freedom and innovation of cryptocurrencies but also raises concerns about its role as a tool wielded by traditional banks to suppress the growth of digital currencies".
The SEC has drawn out the legal battle line and the world is watching as both parties settle out their differences in court.