SEC Charges Binance and CEO Zhao for Fund Commingling and Regulatory Evasion

SEC Charges Binance and CEO Zhao for Fund Commingling and Regulatory Evasion

The largest cryptocurrency exchange in the world, Binance, and its co-founder Changpeng Zhao (CZ) have been charged with 13 offenses. This is done by the US Securities and Exchange Commission (SEC), which is a significant step. According to the charges, the exchange mixed up user cash worth billions of dollars and routed them to a European business owned by Zhao.

The SEC claims that Zhao and Binance attempted to get over their restrictions so that wealthy Americans may trade in Binance’s uncontrolled global exchange. Unbelievably, a senior executive reportedly called the business an “unlicensed securities exchange in the USA”.

The complaint alleges that Binance.US established a shield between the main business and Zhao. This allowed them to evade legal ramifications and scrutiny from law enforcement.

According to the SEC, transaction fees made up the majority of Binance’s $11.6 billion in income from June 2018 to July 2021. The exchange allegedly attempted to attract US clients, disregarding the presence of tens of thousands based there. This action violated federal statutes prohibiting the unregistered offer and sale of securities. According to the SEC, Binance’s compliance initiatives in 2019 were mainly a facade. 

The SEC has charged Zhao with ordering the creation of an evasion strategy. This strategy involved high-net-worth clients using VPN services to hide their location as being in the United States. Then submitting compliance documents to hide their nation of origin.

Zhao just posted the number “4” in response to the accusations on Twitter, which is a recurrent message from the Binance community advising users to ignore fear, uncertainty, and doubt (FUD).

Securities and Exchange Commission Lawsuit, for Binance and Zhao

According to the SEC’s lawsuit, Binance and Zhao violated significant federal security laws through organizations including Merit Peak Limited and Sigma Chain. Both of them were under Zhao’s control and ownership. These violations include self-dealing and market manipulation. Zhao’s name appeared as the beneficial owner of Merit Peak, a company based in the British Virgin Islands. Merit Peak was one of the first market makers on Binance’s American platform.

The accusations against Binance follow similar ones by the US Commodity Future Trading Commission (CFTC). The CFTC accused Binance of failing to prevent American users from accessing the site. Zhao, the CEO of Binance, expressed surprise on Twitter that the media obtained the material before their team. He stated they would reply to the complaint once they had seen it.

The SEC charges the defendants with acting with blatant disregard for federal law. A high-level analysis of Binance’s ownership structure is provided in the complaint. According to the complaint, Zhao and his holding vehicles reportedly have full control over several organizations within Binance and Binance.Gary Gensler.

“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.” remarked the SEC Chair Gary Gensler 

The resolution of this legal dispute will impact the future regulation of cryptocurrency exchanges. It will also shape their compliance with American security laws.


About Valbona

I am a passionate and dedicated student studying Computing and Information Technology at an American university. With a love for reading, writing, and research, I possess technical and problem-solving skills. I have a vision to make a meaningful impact in the world of technology, I aspire to develop innovative solutions that improve lives and empower individuals in the digital age.