Monday, June 17, 2024

SEC Files Lawsuit Against Binance and Coinbase for Unregistered Securities Operations

Coinbase also charged for the unregistered offer and sale of securities in connection with its staking-as-a-service program. According to the regulator, Binance failed to register as a securities exchange and operated illegally in the United States. The U.S. regulator pressed 13 charges against Binance, including unregistered offers and sales of the BNB and Binance USD tokens, the Simple Earn and BNB Vault products, and its staking program. 

The United States Securities and Exchange Commission (SEC) filed a suit against Binance, its U.S. platform and CEO Changpeng Zhao (CZ) in the District Court for the District of Columbia on June 5. In addition, the SEC alleges in the suit that Binance failed to register its Binance.com platform as an exchange or a broker-dealer clearing agency. Further, it claims Binance and BAM Trading Binance.US legal entity failed to register Binance.US as an exchange, broker and clearing agency. CZ was sued as a “controlling person.”

According to the SEC’s complaint, since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law. The SEC’s complaint also alleges that Coinbase’s holding company, Coinbase Global Inc. (CGI), is a control person of Coinbase and is thus also liable for certain of Coinbase’s violations. The SEC’s complaint also alleges that Coinbase’s holding company, Coinbase Global Inc. (CGI), is a control person of Coinbase and is thus also liable for certain of Coinbase’s violations.

Among the allegations behind the charges are claims that Binance failed to restrict U.S. investors from using Binance.com and that Binance.US engaged in wash trading through its “primary undisclosed ‘market-making’ trading firm Sigma Chain,” which is owned by CZ. In addition, the suit claims that funds from Binance and Binance.US were commingled in an account controlled by CZ-associated Merit Peak Limited. 

These charges echo complaints filed by the Commodity Futures Trading Commission on March 27. CZ denied those charges in a detailed blog post. The SEC is demanding permanent enjoinment on Binance and CZ from further activities, disgorgement of ill-gotten gains with interest and financial penalties.  The suit claims that tokens traded on the Binance exchange were securities. Those tokens are BNB, BUSD, Solana, Cardano, Polygon, Filecoin, Cosmos, the Sandbox, Decentraland, Algorand, Axie Infinity and COTI. Binance and Binance.US responded separately to the suit. Binance. 

US stated in a tweet the SEC’s claims are its “latest example of regulation by enforcement.” The suit “is baseless and we intend to defend ourselves vigorously”. Also, “Any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong,” Binance.com said. “The SEC’s actions here appear to be in service of an effort to rush to claim jurisdictional ground from other regulators and investors do not appear to be the SEC’s priority.” 

Allegations against Binance are not new. An SEC investigation of Binance reportedly began in June 2022. Binance has called reports of mismanagement of funds “conspiracy theory.” Lastly, the SEC appreciates the assistance of the multi-state task force of ten state securities regulators led by California that also includes Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin.

Source: 

Press release. SEC Emblem. (2023, June 6). https://www.sec.gov/news/press-release/2023-102 

Andersen, D. (2023, June 5). Sec sues Binance in US District Court for Unregistered Securities Operations. Cointelegraph. https://cointelegraph.com/news/sec-sues-binance-in-us-district-court-for-unregistered-securities-operations

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