U.S. Securities and Exchange Commission Sue Binance, Accusing Them of Running an Illegal Exchange, Bitcoin Feels The Pinch

06 Jun 2023

Mitchell Nixon


Binance, the largest cryptocurrency exchange globally, is facing a lawsuit by federal regulators. The lawsuit claims that Binance operated an unlawful exchange within the United States and mixed together billions of dollars’ worth of customer funds.

The Securities and Exchange Commission, the primary regulatory body for Wall Street, accuses the company of wilfully ignoring US securities laws. Additionally, Binance’s CEO Changpeng Zhao, commonly referred to as CZ, has been included as a defendant in the lawsuit.

“Through 13 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 in a statement Monday.

According to the SEC, Zhao and Binance are accused of combining customer assets and redirecting a portion to an entity under Zhao’s control.

The complaint additionally claims that both Zhao and Binance were aware that they were violating US laws.

“Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, ‘we are operating as a fking unlicensed securities exchange in the USA bro,’ ” the complaint reads, referring to the company’s chief compliance officer.

The press release continues: 

“As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

Binance’s spokesperson expressed the company’s serious consideration of the SEC’s allegations, while maintaining their belief that the agency’s accusations are unfounded.

Per their own press release

“We are disappointed that the U.S. Securities and Exchange Commission chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief.  From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns.  Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.  But despite our efforts, with its complaint today the SEC abandoned that process and instead chose to act unilaterally and litigate.  We are disheartened by that choice.

While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously.  Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.

Today’s action is another in a line of examples where, as with other crypto projects facing similar suits, the Commission has determined to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology. Unilaterally labelling certain tokens and services as securities – even ones over which other U.S. authorities have asserted jurisdiction – only compounds these problems.

Perhaps most surprising, the SEC’s actions undermine America’s role as a global hub for financial innovation and leadership.  Digital asset laws remain largely undeveloped in much of the world, and regulation by enforcement is not the best path forward.  An effective regulatory framework demands collaborative, transparent, and thoughtful policy engagement – a path the SEC has abandoned.” 

In addition, CZ famously tweeted his number 4, his own shorthand for “Ignore FUD, fake news, attacks, etc.”

He also made a number of interesting retweets, including one of the infamous Justin Sun of Huobi Global, which you can read below:

Additionally, a retweet on Charles Hoskinson, which I want to include below, as it reiterates Binance’s own stance on how the SEC is diminishing the US’ ability to become a hub for innovation and blockchain technology:

“With respect to Binance, I’m reading through the SEC complaint. It’s over 130 pages, but seems like the next in a series of steps to implement chokepoint 2.0 in the United States. The end goal is an agenda based CBDC partnered with a handful of massive banks and end-to-end control over every aspect of your financial life.

 A regulatory event is where you have a debate about compliance with a law or guidance. This event seems to be a political philosophical disagreement with the very existence of cryptocurrencies and what they represent. An unelected group of people have decided that concepts like self-sovereign identity, owning your wallet, and the freedom to control your economic agency should be removed from the masses and given to the “enlightened” few. 

Honestly, what is happening isn’t anything new. It’s always the same fight between freedom and authoritarianism just with different players, technology, and words. It does seem like this event is a perfect opportunity for the entire industry to set aside its fragmented nature and unite for a common sense set of rules and guidelines that can prevent the United States from slipping into a dystopia that would make 1984 look like a vacation.

 I’ll have more to say later, but will close with we are going to be fine. Everything’s alright and the future is bright for the industry.”

Very interesting and supportive comments.

Additionally, according to digital asset investment firm Arca CEO Jeff Dorman, the direct impact of an eventual shutdown of Binance operations in the U.S. is irrelevant. Furthermore, non-criminal charges from the past should not destabilise Binance’s present international structures. Still, Arca’s CEO expects negative market sentiment to prevail as the crypto community cheers for CZ and Binance.

As a result, Bitcoin’s price has fallen more than 5%, currently trading around $25,600 as of writing. 

Interesting few weeks as the FUD ramps up, with the incoming CPI data release and next FOMC meeting, with expectations that the Fed still does a ‘skip’ or ‘pause’:

Will Bitcoin swim or sink?

Let’s wait and see.