In a significant development that adds to the legal challenges confronting the cryptocurrency exchange, the US Securities and Exchange Commission (SEC) has filed a lawsuit against Binance Holdings Ltd. and its CEO Changpeng Zhao for alleged violations of US securities rules.
The case, lodged in a US federal court on Monday, accuses Binance of flouting investor protection regulations by operating unregistered exchanges, making false claims about trading controls, and selling unregistered securities, among other infractions.
In a statement, SEC Chair Gary Gensler emphasized the extent of the alleged misconduct, stating, "Through thirteen 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. The public should be cautious about investing their hard-earned assets with or on these illicit platforms."
At the time of reporting, Binance had not responded to requests for comment, although Zhao took to Twitter, stating that his team would carefully review the complaint.
This lawsuit follows a previous legal action initiated by the US derivatives watchdog in March, which claimed that Binance and Zhao routinely violated its regulations. In response, the exchange and its CEO defended their compliance efforts, describing the lawsuit by the Commodity Futures Trading Commission as disappointing. They also reaffirmed their commitment to collaborating with regulatory authorities.
For several months, the SEC has been investigating whether Binance unlawfully sold digital tokens during its launch in 2017. One particular token, known as BNB, has since become one of the largest in the world.
Under SEC purview, a virtual currency may be subject to scrutiny if investors purchase it with the intent to support a company or project and profit from their involvement. This determination is based on a 1946 US Supreme Court decision that defined investment contracts.
As the legal battle ensues, the outcome of this case could have profound ramifications for Binance and the wider cryptocurrency industry. It highlights the growing importance of regulatory compliance and transparency in the crypto space, as authorities seek to strike a balance between innovation and investor protection.