Since the collapse of FTX seven months ago, the SEC has orchestrated a major crackdown on the $1 trillion crypto market. But the Binance case represents Gensler’s biggest salvo to date, a broader swing by the company against the exchange and its top CEO. At one point in the complaint, the SEC alleges that customer money was “at the mercy of Finance and Zhao.”
Binance denied the SEC’s allegations Blog, including claiming that customer assets on Binance.US were at risk. The company said it was “dissatisfied” by the SEC’s decision to bring the case to court after the two sides engaged in talks about a settlement.
“While we take the SEC’s allegations seriously, they should not be the subject of SEC enforcement action, let alone on an urgent basis,” the company wrote in the filing. “We want to actively protect our site.”
Founded in 2017, Binance came on the scene relatively late compared to other crypto businesses like Coinbase and Kraken. But the exchange was quick to gain overseas market share, and in 2019, it announced it was setting its sights on the United States.
However, US regulators have alleged that the finances were in the states all along. The SEC said on Monday that the subsidiary — Binance.US — established in 2019 was “part of an elaborate scheme to evade US federal securities laws” and continues to direct some “high-value US clients” to the main Binance exchange.
“Brother, we operate as an unlicensed securities exchange in the US,” one former Binance executive told another in December 2018, according to the SEC’s complaint.
Among other charges leveled against Finance, the exchange is operating an unregistered national securities exchange, broker-dealer and clearing agency.
The SEC also said Binance.US failed to properly monitor trading on its marketplace. In turn, according to the SEC, Zhao-owned trading firm Sigma Chain was able to artificially inflate trading volume on Binance.US through a wash-trading scheme.
Zhao has long been one of the most influential names in crypto. In late 2022, as fears spread that FTX was on the brink, Zhao stoked concerns before vowing to take over the exchange — a move he soon backtracked on, setting the stage for FTX’s bankruptcy. He reportedly once approached Gensler to advise him on finance, an offer the then MIT professor turned down.
Although Zhao has a huge following online and in the crypto market, he and his company are viewed with skepticism by many in Washington.
His long-standing refusal to specify the exchange’s location has angered regulators around the world. And US officials have been circling for months. The CFTC struck first in March A series of similar charges The Justice Department is also investigating the transaction as a result of the US transaction’s operations, Reuters reported.
For the crypto market, the SEC’s case against Binance is already having ripple effects. That’s because the agency named in the complaint a dozen tokens trading on Binance that it believes are unregistered securities — possibly opening up others in the market dealing in those names to regulatory risk.