On Monday, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance and its CEO Changpeng Zhao, alleging that the cryptocurrency exchange operated an illegal trading platform in the U.S. and misused customers’ funds. The news dragged down cryptocurrencies, with Bitcoin (BTC-USD) touching its lowest in almost three months. Crypto stocks like Coinbase Global (NASDAQ:COIN) also declined on Monday.
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SEC Sues Binance
In a complaint filed in a federal court in Washington, D.C., the SEC listed 13 charges against Binance, Zhao, and the operator of its independent U.S. exchange. The SEC alleged that Binance and Zhao misused customers’ funds and diverted them to a trading entity called Sigma Chain, controlled by Zhao. The regulatory body added that Sigma Chain indulged in manipulative trading that artificially inflated the trading volume of crypto asset securities on the Binance.US platform.
Further, the SEC said that Binance and its CEO commingled billions of dollars in customer assets and diverted them to a third-party Merit Peak, also owned by Zhao. The SEC urged a federal judge to freeze Binance’s assets and appoint a receiver.
“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.
Meanwhile, in a blog post, Binance stated that it would vigorously defend its platform, calling the SEC’s actions “limited in reach” because the company is not a U.S. exchange. The crypto exchange assured that all user assets on Binance and its affiliate platforms, including Binance.US, are “safe and secure.”
Growing Regulatory Headwinds
Regulators have heightened scrutiny of crypto firms since the debacle of FTX and other crypto entities last year. In March, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance, for allegedly operating an illegal exchange and a “sham” compliance program. It is also under investigation by the Department of Justice (DOJ) for potential money laundering and sanctions violations.
Aside from Binance, Coinbase is another crypto exchange that is facing the SEC’s wrath. On Monday, COIN stock fell 9%, while several cryptocurrencies, including Bitcoin, Binance coin (BNB-USD), and Ethereum (ETH-USD), also retreated.
Despite recent volatility, Bitcoin is still up more than 64% year-to-date.
