SEC Files Lawsuit Against Binance and CEO Zhao for Violating US Securities Rules

In a significant legal development, Binance Holdings Ltd. and its CEO Changpeng Zhao are facing a lawsuit from the US Securities and Exchange Commission (SEC) for allegedly violating US securities regulations. The SEC’s case, filed in federal court, accuses the crypto exchange of operating unregistered exchanges, misrepresenting trading controls, and selling unregistered securities, among other violations.

SEC Chair Gary Gensler issued a statement, highlighting the extensive alleged wrongdoing by Binance and Zhao. He emphasized the importance of investor protection and urged the public to exercise caution when dealing with these unlawful platforms. When SEC released this statement, Zhao mentioned on Twitter that his team would review the complaint.

This legal action follows a previous lawsuit by the US Commodity Futures Trading Commission (CFTC) in March, which also alleged rule-breaking by Binance and Zhao. At that time, Binance defended its compliance efforts and expressed disappointment with the CFTC’s lawsuit while committing to continue collaborating with regulators.

The SEC has been investigating Binance’s potential illegal sale of digital coins since the exchange’s inception in 2017. The scrutiny centers around the token known as BNB, which has become one of the largest in the world.

Determining whether a virtual currency falls under the SEC’s jurisdiction involves assessing whether investors purchase it to support a company or project with the intention of profiting from their efforts. This determination is based on a 1946 US Supreme Court decision that defined investment contracts.

In response to the SEC’s complaint, Binance issued a statement expressing disappointment with the regulator’s choice to file the complaint. The company emphasized its willingness to cooperate and engage in discussions to settle, but the SEC pursued litigation unilaterally. In addition, Binance criticized the SEC for its lack of clarity and guidance for the digital asset industry and raised concerns about its detrimental impact on US financial innovation and leadership.

Binance firmly asserted the safety and security of user assets on its platforms, refuting any claims suggesting the contrary. The company criticized the SEC’s alleged rush to assert jurisdictional authority and highlighted its commitment to global cooperation with regulators and policymakers. Binance views the SEC’s actions as an attempt to grab headlines rather than genuinely protect investors.

While the SEC’s actions may have limited reach due to Binance’s status as a non-US exchange, the company stands in solidarity with digital asset market participants opposing what they perceive as regulatory overreach. Binance vows to fight the SEC’s lawsuit and collaborate with industry partners to defend the technology and uphold the principles of financial freedom.

The ongoing legal battle between Binance and the SEC underscores the need for clear regulatory frameworks and thoughtful policy engagement in the evolving cryptocurrency landscape. As the case progresses, it will have significant implications for the future of the crypto industry and its relationship with regulatory authorities.