The Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency exchange giant, Binance Holdings Limited, alongside BAM Trading Services Inc., BAM Management US Holdings Inc., and the company’s CEO Changpeng Zhao, alleging a significant breach of federal securities laws.
The lawsuit accuses Binance and its affiliates of exploiting lax regulations to enrich themselves by billions of dollars, thereby exposing investors’ assets to substantial risk. The defendants are alleged to have solicited U.S. investors to engage in cryptocurrency transactions on unregistered trading platforms Binance.com and Binance.US.
According to the SEC, under Zhao’s leadership, Binance and BAM Trading offered three fundamental securities market functions—exchange, broker-dealer, and clearing agency—on the Binance platforms without the necessary registration with the SEC. This was in conscious disregard for U.S. law requiring registration for these functions, allowing the defendants to evade critical regulatory oversight designed to safeguard investors and markets.
The SEC also alleges that the defendants engaged in unregistered offers and sales of crypto asset securities, including Binance’s own assets, “BNB” and “BUSD.” In addition, their profit-generating programs, such as “BNB Vault” and “Simple Earn,” and a so-called “staking” investment scheme available on the Binance.US platform were all deemed illegal. This action, according to the SEC, has deprived investors of material information, including the risks and trends that impact the enterprise and an investment in these securities.
Furthermore, the SEC’s complaint states that BAM Trading and BAM Management misrepresented the control measures supposedly in place on the Binance.US platform, thereby raising approximately $200 million from private investors and attracting billions of dollars in trading volume.
The SEC’s lawsuit also describes a plan, allegedly designed and implemented by Zhao and Binance, to avoid U.S. regulation and maintain control over BAM Trading’s U.S. operations. This was accomplished by creating BAM Management and BAM Trading in the U.S., claiming these entities independently controlled the Binance.US platform’s operations.
The complaint suggests that Binance purposefully evaded U.S. regulatory oversight while providing securities-related services to U.S. customers. This alleged evasion allowed for the unsafe handling of billions of dollars of U.S. investor capital and non-compliance with proper registration, leading to a violation of the law.
Moreover, BAM Trading and BAM Management are accused of obtaining money through materially false and misleading statements and engaging in deceptive transactions. If these entities are not permanently restrained, the SEC fears a reasonable likelihood of continued violations of federal securities laws.
In response to these allegations, the SEC is seeking a final judgment to permanently enjoin Binance and its affiliates from committing further violations of federal securities laws. They also seek an order for the defendants to disgorge their ill-gotten gains with prejudgment interest and impose civil money penalties.
This lawsuit marks a significant development in the ongoing tension between the rapidly evolving cryptocurrency industry and regulatory authorities. It underscores the importance of regulatory compliance for all entities operating within the crypto space, particularly those serving U.S. customers.
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