Binance US, under SEC lens, now dragged to court for being 'illegal and fraud'

The crypto exchange is accused of operating an illegal exchange and fraud.
Ameya Paleja
Stock image of Binance coin
Stock image of Binance coin


The world's largest crypto exchange, Binance, is being sued by the Securities and Exchange Commission (SEC) in the U.S., The Verge reported. The crypto exchange has been under investigation by the SEC as well as the Commodity Futures Trading Commission (CFTC) for alleged violations of financial laws in the U.S.

The lawsuit comes after the crash of FTX, the second-largest crypto exchange in the world, leaving very little room for crypto investors to extend their wings. Countries like China have called for a blanket ban on cryptocurrencies, and while they are not regulated, the U.S. is a large market for cryptocurrencies.

Binance operates a Binance.US platform, much like FTX did, which it claims is separate from its main platform. However, the SEC has claimed that Binance has conducted multiple actions to escape regulatory oversight in the U.S., which Binance denied in a statement.

Binance, an illegal exchange says SEC

In the lawsuit filed in a court in Columbia, the SEC named Binance founder Changpeng Zhao and called Binance a "broker-dealer, exchange, and clearing agency" which lacked proper registration in the country.

The suit also alleged that Binance's BNB token should have also been registered with the agency but was not done so to avoid regulatory oversight. It further said that defendants "solicited investors, engaged in multiple unregistered schemes," and "enriched themselves by billions of dollars by placing investors' assets at significant risk".

Moreover, the platform claimed that it had applied controls over manipulative trading on the Binance.US platform when it was virtually nonexistent, the lawsuit alleges—the SEC singled out the practice of "wash-trading" where traders illegally buy assets from accounts they control to inflate their prices and said that there were no monitors for such activity.

Binance US, under SEC lens, now dragged to court for being 'illegal and fraud'
Litigations will erode trust in cryptoexchanges

Binance-controlled US bank accounts

Investigations into Silvergate Bank, a lender in the U.S. which collapsed alongside FTX, have now revealed that a close associate of Changpeng Zhao was authorized to operate all Binance.US accounts in 2019-20.

Chen's listed address at the bank was Shanghai, and Binance's U.S. affiliate employees needed her approval for all payments, including payroll, a Reuters report said. This starkly contrasts Binance's claim that the affiliate office operated independently.

Reuters has previously reported that a deputy of Chen transferred $400 million to a trading firm, Merit Peak, controlled by Zhao in 2021. Binance.US claimed that Merit Peak was withdrawing its funds in this transaction. However, reports also suggest that Binance.US did not separate customer deposits from the company's funds, a requirement as per U.S. laws.

Catherine Coley, the former CEO of Binance.US, told colleagues in messages that the U.S. team were not administrators for Silvergate accounts but only had view access. On multiple occasions, Coley and her team sought access control for these accounts in 2020 and mentioned that transfers to Merit Peak were happening without her knowledge. Coley left the company in 2021.