SEC Sues Crypto Exchange Binance and Its Founder

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Facts

  • The US Securities and Exchange Commission (SEC) has sued the world's largest cryptocurrency exchange, Binance, as well as its founder and CEO Changpeng Zhao, accusing them of profiting billions while "placing investors’ assets at significant risk."1
  • The regulator filed 13 charges against Binance in the US District Court for Washington, DC — including misleading investors about its ability to detect market manipulation, misusing customer funds, and sending some of that money to a company controlled by Zhao.2
  • The company is also accused of failing to register as a broker or an exchange, with the SEC arguing that securities law prohibits offering cryptocurrencies without registering them. Exchanges like Binance and its rival Coinbase argue that cryptocurrencies are not securities.3
  • Binance allegedly made $11.6B between June 2018 and July 2021, mostly through transaction fees. While Zhao publicly claimed US customers were restricted from exchanges on Binance.com, the SEC says he and the company "subverted their own controls to secretly allow high-value US customers to continue trading on the Binance.com platform.”1
  • The news sent a ripple effect across the crypto industry, with Coinbase's stock falling 10% on Monday and currencies such as bitcoin and ether both dropping as much as 5% in value.3
  • The lawsuit — which follows a US Commodity Futures Trading Commission complaint alleging Binance violated US derivatives trading laws — comes as Sam Bankman-Fried, the founder of crypto exchange FTX, awaits trial for what prosecutors have called one of the biggest financial frauds in US history.4

Sources: 1Guardian, 2NPR Online News, 3Business Insider, and 4CNN.

Narratives

  • Narrative A, as provided by Intelligencer. For more than a decade Binance has made billions of dollars through its deceitful and fraudulent business practices. Though no criminal charges were made, the SEC is finally — both publicly and officially — calling out the world's crypto leaders for secretly spending customers' money and sliding funds into shell companies to enrich themselves. This will hopefully bring an end to the wild west era of cryptocurrency, one that has led to vulnerable customers' losing billions in lost investments.
  • Narrative B, as provided by Market Watch. While existing laws should be enforced, the government should not go any further in treating cryptocurrency like traditional currency or financial institutions. The SEC must allow a more open environment to spur innovation. This also doesn't mean traditional institutions can't participate in the crypto world — they will be the ones who invest in these technologies to make financing cheaper and more efficient. Cryptocurrency is still a viable space.