SEC sues Binance and CZ, alleging multiple securities violations, Binance faces significant outflows

Binance and the CEO of the company, Changpeng Zhao, are charged with violating US securities laws.

SEC files lawsuit against Binance and CZ

In a court filing issued on Monday, June 5, the SEC charged Binance, the largest cryptocurrency exchange in the world, with improperly managing client funds and failing to register with the Securities and Exchange Commission.

In addition, the lawsuit claims that Binance, BAM Trading, and Binance.US sold securities without authorization and did not register with the SEC.

According to the SEC, “First, Binance and BAM Trading, under Zhao’s direction and control, have illegally provided three crucial securities market functions—exchange, broker-dealer, and clearing agency—on the Binance Platforms without registering with the SEC. Despite being fully aware that registration for these activities is required by U.S. law, the defendants decided not to register to avoid the crucial regulatory scrutiny meant to safeguard investors and markets.

The SEC states that BAM Trading’s staking system is an investment deal that fits within its security definition.

To execute unregistered offers and sales of crypto asset securities, both Binance and BAM Trading “have engaged and continue to engage in unregistered offers and sales of crypto asset securities, effecting unregistered crypto asset securities transactions on the Binance Platforms.” 

Additionally, according to the SEC, Binance CEO Changpeng “CZ” Zhao was “directly involved in leading BAM Trading’s U.S. business operations.”

According to the lawsuit, Zhao instructed Binance to help some high-value U.S. clients get around such controls covertly because, as Zhao admitted, Binance does not want to “be held accountable” for these activities.

According to the lawsuit, despite Binance’s June 2019 declaration that “it would no longer serve U.S. investors,” Zhao and Binance “actively solicited” US investors via Zhao’s social media use, and Binance staff members were encouraged to keep US investors on the Binance.com Platform.

Gurbir S. Grewal, head of the SEC’s enforcement division, stated, “We claim that Zhao and the Binance businesses not only recognized the rules of the road, but they also intentionally decided to flout them and placed their consumers and investors at risk.

The Commodity Futures Trading Commission (CFTC) sued Binance in March for claims of regulatory commodity breaches, including permitting Americans to use its cryptocurrency platform without registering with the organization.

Substantial Withdrawals from Binance

Cryptocurrency traders are hastily withdrawing their cash from the cryptocurrency exchange in response to the latest legal action brought by the SEC against Binance and its CEO, Changpeng Zhao.

A renowned blockchain intelligence platform, Nansen, examined blockchain data and found that when the U.S. Securities and Exchange Commission (SEC) filed litigation against the exchange and its CEO, traders and investors significantly reduced their counterparty risk. 

Nansen claims that within one hour, traders on Binance withdrew a total of $125 million in digital assets, yet the platform only received $56 million in deposits. These numbers show that the exchange had a substantial net outflow of money during that hour.

The current flurry of withdrawals from Binance seems to be considerably less than the sizeable outflows observed in February as a result of regulatory actions taken against BUSD issuer Paxos, based in New York, by the New York Department of Financial Services, and a Wells Notice given to Binance by the SEC.

Charles Hoskinson and Justin Sun support Binance

After being accused of violating securities laws on June 5, Binance received backing from other players in the crypto industry.

Charges were brought by the Securities and Exchange Commission (SEC) against Changpeng Zhao, the CEO of Binance, and any associated companies

Former TRON CEO and Huobi adviser Justin Sun offered Zhao his support following the release of the news. Sun said the following in a tweet: “I wanted to take a minute to let you know my unwavering support for you. I believe in you and trust you since you are one of my friends. We are here for you!”

Sun stated his confidence in Zhao’s capacity to manage the legal proceedings and establish his innocence. As opposed to settling without admitting or denying wrongdoing, as many other businesses have done, Binance has stated it intends to defend itself against the SEC.

The CEO of IOHK and Cardano’s founder, Charles Hoskinson, shared his views on Binance’s position. He warned that some circumstances might indicate bigger changes. He stated: “It appears to be the next stage in implementing Chokepoint 2.0… The ultimate objective is agenda-based [Central Bank Digital Currency], control over all facets of your financial life, and partnerships with a few extremely large institutions.

Hoskinson stated that despite his worries, he thinks the crypto sector is “going to be fine” and that this kind of difference is not particularly unusual.