6th June 2023 – (New York) On Monday, the Securities and Exchange Commission (SEC) filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, for allegedly running an illegal operation in the United States. Binance Coin, the cryptocurrency created by Binance, tumbled nearly 10%, marking its most significant one-day drop so far this year. This drop comes as US regulators continue to crack down on cryptocurrency companies. Binance is not the only cryptocurrency that experienced a decline on Monday: Bitcoin dropped more than 5.5% to a two-month low of $25,620, while Ethereum fell nearly 5% to $1,803, and Dogecoin decreased by more than 8% to just under 7 cents.
In the lawsuit, the SEC alleges that Binance and its founder, Changpeng Zhao, misused customers’ funds, diverting them to an entity Zhao owned called Sigma Chain that conducted “manipulative trading” to inflate the volume of trading on the crypto exchange. The complaint also states that while Binance and Zhao claimed the company’s US subsidiary was an independent trading site, they controlled it behind the scenes, and the company allegedly allowed some US customers to use the main Binance exchange. Zhao denied the allegations, calling the suit “unjustified” and one of many of the SEC’s “misguided actions” targeting crypto.
Shares of leading crypto broker Coinbase also fell by more than 10.5% to $57.69 on Monday, although it is still up more than 71% on the year.
Binance has faced a slew of legal trouble in recent months, as crypto markets remain shaky after dropping last fall amid concerns of an extended bear market called a crypto winter. In March, the CFTC filed a complaint in federal court in Chicago alleging Binance and Zhao offered crypto futures and other derivatives to US residents without registering those offers through the CFTC. The suit also alleges the company’s former chief compliance officer, Samuel Lim, aided and abetted Binance’s violations of US law. Binance was also scrutinised for backroom asset shuffling between August and December 2022 involving roughly $1.8 billion it shifted to hedge funds without informing its customers, who were told the tokens were 100% backed, according to Forbes. The shifting marked a series of internal movements eerily similar to those at the bankrupt crypto company FTX. Additionally, Binance had pulled out of a non-binding agreement in November to purchase FTX’s non-US operations after the firm’s collapse, citing the company’s liquidity issues “beyond our control or ability to help” after FTX users withdrew billions of dollars worth of its cryptocurrency from the platform.
Binance is not the only cryptocurrency firm facing allegations from U.S. authorities. In December, former FTX CEO Sam Bankman-Fried was charged with eight criminal counts, including wire fraud on customers and lenders, money laundering, and violating US campaign finance laws, after he was arrested in the Bahamas in the weeks after FTX’s sudden collapse. Bankman-Fried, who has denied the allegations and pleaded not guilty to the charges, allegedly defrauded customers by redirecting their deposits to pay expenses at crypto trading firm Alameda Research, which he co-founded. The SEC is also planning to take legal action against Coinbase over allegations it violated investor-protection laws, according to an SEC warning delivered to Coinbase, the Wall Street Journal reported.