SEC presses charges against Binance's US-based entity, community accuses the administration of hindering crypto growth

Just months after CFTC filed a lawsuit against the crypto exchange, Binance's US arm has now been sued by the SEC.

Published: Jun 7, 2023 04:27:55 PM IST

Updated: Jun 7, 2023 04:35:17 PM IST

Changpeng Zhao, Co-Founder & CEO, Binance; Image: Ben McShane/Sportsfile for Web Summit via Getty Images

The US arm of the crypto exchange Binance, along with its CEO Changpeng “CZ” Zhao, has been sued by the US Securities and Exchange Commission (SEC) for violating securities laws.

The United States SEC filed 13 charges against Binance on June 5, 2023 in the US District Court for the District of Columbia proclaiming that the crypto exchange had misled the investors and even misused the funds of customers.

A report published in the last week of May was the first to give an account of such accusations against Binance for mishandling customers’ funds and violating the U.S. banking regulations. At that time, refuting all the stated allegations, Binance had claimed the report to be an amalgamation of conspiracy theories.

Regulators further alleged that Binance has been combining “billions of dollars” in user assets and moving them secretly to a different company under CZ’s control.

As per the regulators, Binance did not take clear steps to prevent American investors from using its unlicensed exchange. The accusations in the lawsuit revolved around how Binance and Zhao exercised control over the assets of the customers and covertly controlled the operations of its U.S entity.

The lawsuit stated:

"As a second part of Zhao’s and Binance’s plan to shield themselves from US. regulation, they consistently claimed to the public that the Binance.com Platform did not serve US persons, while simultaneously concealing their efforts to ensure that the most valuable US customers continued trading on the platform."

In response to the lawsuit, Binance clarified that the funds of users of Binance.US were never at risk.

Notably, the SEC lawsuit references the "Tai Chi" documents reported on by Forbes as far back as 2020, which outlined a plan for Binance to officially leave the U.S. markets but still maintain their presence through a partner.

Tai Chi is a Chinese term used for explaining a method to prevent taking responsibility. Binance at the time even threatened to sue the publishers over these claims.

At the time, Nic Carter, co-founder of Coin Metrics, used the term Operation Chokepoint 2.0 to refer to an alleged effort of the US regulators to choke the growth of the crypto industry.

Both these theories resurfaced after a recent SEC lawsuit, with Charles Hokinson, the founder of Cardano adding fuel to the Operation Chokepoint 2.0 theory. Hoskinson claimed that the SEC’s next move is to implement chokepoint 2.0 in the United States. The end goal is an agenda-based CBDC [central bank digital currency] partnered with a handful of massive banks and end-to-end control over every aspect of your financial life.”

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash