- On Monday, the SEC filed 13 charges against Binance, the world’s biggest crypto exchange, and its founder, Changpeng Zhao, alleging that they offered unregistered securities and comingled billions in user funds
- Similar charges against Coinbase were made public earlier Tuesday
- The regulator alleges that the exchanges are in violation of federal law and have shown a blatant disregard for investor protections
- Crypto assets are moderately in the red for the week
The SEC on Monday filed 13 charges against Binance, the world’s biggest crypto exchange, and its founder, Changpeng Zhao, alleging that they comingled billions in user funds.
The regulator claims Zhao and his international exchange eased internal controls to allow high-net-worth U.S. investors to continue trading cryptocurrencies, despite federal law barring the unregistered offer and sale of securities. They also allege that Binance.US served as cover for this activity, which included tens of thousands of U.S. customers that may have hid their location using VPNs.
Additionally, the lawsuit maintains that Binance and Zhao controlled market-making companies that artificially inflated crypto trading prices, including wash trading, and profited in the billions at customers’ expense.
Binance earned US$11.6 billion in mostly transaction fee revenue from June 2018 to July 2021.
“Through 13 charges, we allege that Zhao and Binance entities 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 an official statement released Monday.
Zhao and Binance have dismissed the charges, with the exchange expressing a willingness to actively cooperate with the SEC to settle its investigations.
Coinbase lawsuit
The news precedes the SEC’s lawsuit against Coinbase, announced Tuesday, alleging that the U.S.’s largest crypto exchange is operating illegally, as it’s not registered with the regulator.
The SEC’s complaint states that Coinbase has raked in billions of dollars since 2019 by facilitating crypto transactions while evading disclosure requirements. Transactions represented 75 per cent of its US$3.15 billion in net revenue last year.
The regulator is seeking civil fines, the recovery of ill-gotten gains, as well as injunctive relief.
Paul Grewal, Coinbase’s general counsel, stated that the company will continue operating as normal.
“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” he added.
The SEC’s moves are intended to enhance trust in capital markets by reining in what Gensler has referred to as crypto’s “Wild West” nature, where fraud has run rampant amid extreme volatility and a lack of investor protections.
In response, crypto markets trended slightly downward, with Ethereum, Bitcoin and Binance’s BNB coin down 4.4, 6.8, and 11.8 per cent over the past week, respectively.
Coinbase (NDAQ:COIN) is down 11.2 per cent for the day.
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