US banking regulators have sued Binance for its “web of deception.”
The SEC said the trading platform and its founder, Changpeng Zhao, violated investor protection laws to operate in the US.
Mr. Zhao and the company are both accused of mishandling customer funds.
Binance stated that it would “vigorously” defend the platform.
Following US cryptocurrency regulation commitments, the SEC filed its second case against the business in 2018.
The company, which was established in 2017 and operates in over 100 countries, denied that customer funds were at risk.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action.” Binance said, adding that it had been in talks with the regulator.
The lawsuit showed regulators’ “misguided and deliberate refusal to provide the digital asset industry with much-needed clarity and guidance.”
The Cayman Islands-based exchange Binance is the world’s largest platform for purchasing and selling cryptocurrencies and other digital assets.
“Absence of disclosure”
The SEC alleged in its complaint that the company and Mr. Zhao illegally solicited investors and customers, misrepresented the extent of trading on the platform, and misled the public about its supervision.
The crypto firm and its founder are also accused of diverting client funds to companies controlled by Mr. Zhao, an industry-famous Chinese-Canadian billionaire known as CZ.
Mr. Zhao and Binance “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” stated SEC Chair Gary Gensler in announcing the 136-page lawsuit.
“The public should avoid investing their hard-earned money on or through these illegal platforms,” he added.
The filing comes at a time when US authorities have pledged to use existing laws to eradicate fraud and other problems in the cryptocurrency industry, particularly in the wake of Binance rival FTX’s dramatic collapse last year.
The Commodity Futures Trading Commission sued Binance in March for operating unlawfully in the US. The Department of Justice is also conducting an investigation.
Bitcoin dropped more than 5% after the SEC announced it will prohibit Binance in the US.
In its complaint, the SEC claimed Binance and Mr. Zhao had “free reign” over billions of US-based crypto assets.
‘Blatant disregard’
Mr. Zhao, Merit Peak, and Sigma Chain were accused of fraudulently transferring tens of millions to other corporations they controlled. In one instance, it was stated that one of these accounts subsequently acquired a $11 million yacht.
In the lawsuit, the SEC alleged that Binance and Mr. Zhao demonstrated “blatant disregard for the federal securities laws and the investor and market protections these laws provide.”
“By doing so, the defendants have amassed billions of dollars while putting the assets of investors at significant risk.”
According to the lawsuit, which was filed on Monday in federal court in Washington, DC, efforts to evade regulators were widely known within the company, which earned at least $11.6bn in revenue from US consumers between June 2018 and July 2021.
According to the lawsuit, in 2018 the company’s chief operating officer told another compliance officer, using an expletive, “We are operating as an unlicensed securities exchange in the United States, bro.”
