The U.S. Securities and Exchange Commission (SEC) filed 13 charges against the cryptocurrency exchange Binance and its affiliates for unregistered activities in the United States and violating securities laws.
The SEC filed a lawsuit in U.S. District Court for the District of Columbia against one of the world’s leading crypto exchanges. The regulator accuses Binance, its CEO Changpeng Zhao, and U.S.-based BAM Trading Services Inc., one of Binance’s parent entities, of violating federal securities laws, including misleading investors, conflicts of interest, and violating registration requirements.
The SEC’s charges against Binance and its affiliates include:
- Unregistered activities as a securities exchange, broker-dealer, and clearing agency.
- Unregistered offer and sale of securities.
- Controlling the assets of the platforms’ customers to commingle and divert customer funds, including using its own company, Sigma Chain.
- Deception of investors regarding the lack of trading controls and manipulation of trading volumes on the Binance.US platform by Binance.com.
- Unregistered offerings and sales of crypto-assets, including the BNB token, the Binance USD stablecoin (BUSD).
- Distribution of unregistered cryptocurrency products and the Binance.US staking program.
- Evasion of restrictions on U.S. investors’ access to the Binance.com platform.
The SEC notes that Binance used a fraudulent scheme to circumvent U.S. securities laws by claiming that Binance.US operates independently and U.S. customers can’t use the Binance.com platform. In the lawsuit, the regulator cites testimony from an anonymous source who ran Binance.US for a brief period in 2021. According to Lawyer James Murphy, the source is Brian Brooks, ex-CEO of Binance.US, who decided to resign just three months after his appointment. The lawsuit cites that Brooks quickly realized that he was “not actually the one running this company.” Thus, the SEC claims that Changpeng Zhao and Binance continued to control Binance.US and covertly allowed some U.S. customers to continue using Binance.com. The SEC alleges that Binance received at least $11.6 billion in revenue as transaction fees from U.S. customers.
The SEC’s charges also address the unregistered offer and sale of various crypto-assets. It’s worth noting that in addition to the assets already recognized by the SEC as securities, the lawsuit against Binance involves ten other cryptocurrencies that weren’t previously mentioned by the regulator:
- BNB (BNB);
- Binance USD (BUSD);
- Solana (SOL);
- Cardano (ADA);
- Polygon (MATIC);
- Cosmos (ATOM);
- The Sandbox (SAND);
- Decentraland (MANA);
- Axie Infinity (AXS);
- COTI (COTI).
This brings the total number of cryptocurrencies recognized as securities by the SEC to 61, and their overall capitalization to about $100 billion, which is about 10% of the total crypto market.
The news about the SEC’s charges against Binance instantly affected the state of the crypto market. According to CoinMarketCap, over the last 24 hours, BTC fell about 4% and ETH decreased by 3%. Large altcoins, which appeared in the lawsuit against Binance, also lost a significant part of the value. As of 11:00 a.m. (GMT+3), June 6, the price of ADA fell by 6.4%, SOL by 7.3%, MATIC by 6.5%, and BNB lost more than 8% of its value in the last 24 hours. The crypto market cap fell 3.6% in the last 24 hours.
Stock prices of publicly listed crypto companies in the U.S. also dropped sharply. For example, shares of Coinbase fell by 9% during market trading on June 5. Traders with open positions in the crypto derivatives market also felt the effects of the news. Liquidations exceeded $280 million since the announcement of the lawsuit against Binance.
Changpeng Zhao stressed the Binance team’s willingness to ensure the stability of the system. Binance published a response to the SEC’s claims on its blog, in which company representatives expressed frustration with the regulator’s aggressive approach, saying they were ready to fight the charges. Zhao also emphasized the safety of Binance users’ assets.
In turn, Binance users also reacted to the negative news. Within 12 hours, about 10,000 BTC were withdrawn from the platform’s accounts, which is approximately 1.5% of Binance’s total balance. According to CoinGlass, 108,799 transactions on exchanges were forcibly closed in the last 24 hours, and the total amount of liquidations was $295.85 million, of which only $545,000 accounted for Binance. According to Ki Young Ju, Founder and CEO of CryptoQuant, Binance’s position remains strong.
Binance’s market share fell by 16% earlier amid FUD, and the crypto exchange lost about 18% of its spot market share in the last month. However, the SEC’s direct allegations against Binance only caused outrage from the cryptocurrency community. The crypto exchange and Changpeng Zhao received support not only from Binance users, but also from prominent members of the community. For example, Justin Sun, Founder of TRON, expressed his support for Binance and his confidence in the credibility of the crypto exchange. Other members of the cryptocurrency community believe that the SEC’s attacks on Binance threaten users’ freedoms and limit innovations, as the SEC perceives crypto as a threat, which in turn is inspired by the interests of traditional financial institutions.
The other day, the U.S. Republicans introduced a new bill that would clarify the SEC’s authority to regulate the crypto market.
