- Binance’s unlawful enrichment
- According to the SEC, Binance circumvents the rules
- SEC requirements
- Binance is not getting any less popular in the U.S.
- Conclusion
The entire crypto community has been surprised by the news as the U.S. Securities and Exchange Commission (SEC) sues Binance. In its 136-page-long complaint, the Commission provided a detailed description of its objections to Binance’s operations. The document is all the more epic due to the quote attributed to Changpeng Zhao,
“As Binance’s CCO [Zhao] bluntly admitted to another Binance compliance officer in December 2018, ‘we are operating as a fking unlicensed securities exchange in the USA bro.’”
Необоснованное обогащение Binance
The SEC has snapped and finally proclaimed a full-on crusade on crypto exchanges. In the complaint’s summary, the Commission explained,
“This case arises from Defendants’ blatant disregard of the federal securities laws and the investor and market protections these laws provide. In so doing, Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”
The Commission added, “Defendants have unlawfully solicited U.S. investors to buy, sell, and trade crypto asset securities through unregistered trading platforms.”
According to the SEC, Binance circumvents the rules
In 2019, Changpeng Zhao announced that Binance would no longer provide services to U.S. customers. However, the SEC believes that in 2018, the exchange hired advisors to consider methods of bypassing the restrictions in the U.S. As a result, the “Tai Chi” entity was established to “reveal, retard, and resolve built-up enforcement tensions and insulate Binance from legacy and future liabilities.”
The SEC accuses the exchange of the fact that “starting in or around 2018, determined to escape the registration requirements of the federal securities laws, Defendants — under Zhao’s control — designed and implemented a multi-step plan to surreptitiously evade U.S. laws. As Binance’s Chief Compliance Officer admitted, ‘we do not want [Binance].com to be regulated ever.’”
SEC requirements
The Commission seeks a final judgment:
- Permanently enjoining Defendants from committing further violations of the federal securities laws;
- Ordering Defendants to disgorge their ill-gotten gains with prejudgment interest;
- Permanently enjoining Defendants and any entity controlled by them from, directly or
indirectly, using the means or instrumentalities of interstate commerce to participate in the issuance, purchase, offer, or sale of any security, including any crypto asset security, in any unregistered transaction; - Enjoining Defendants to act as an unregistered exchange with respect to any securities, including any crypto asset securities;
- Enjoining Defendants to act as an unregistered broker or dealer with respect to any securities, including any crypto asset securities;
- Enjoining Defendants to act as an unregistered clearing agency with respect to any securities, including any crypto asset securities.
The SEC also requests the court to impose money penalties on Defendants and order equitable relief that may be appropriate or necessary for the benefit of investors.
Binance is not getting any less popular in the U.S.
When the exchange announced that it was leaving the U.S. market, there were almost 1.5 million U.S. investors operating on the platform. According to the SEC, Zhao demanded Binance employees take active steps and implement other measures to keep U.S. traders engaged on Binance.com. Between 2019 and 2021, over 47,000 U.S. customers traded on Binance. The exchange also continued supporting U.S. customers after leaving the market.
According to the complaint, “by 2019, Binance had over 3,500 U.S. customers who were large-volume traders that Binance referred to as ‘VIPs.’ These U.S. customers were important to
Binance not only because they directly produced substantial revenues, but also because they
provided substantial liquidity on the Binance.com Platform.” The restrictions were bypassed through the use of virtual private networks (VPNs) and submitting updated KYC information.
Zhao is also accused of soliciting investors via marketing and social media. According to the SEC, such promotion was misleading.
Conclusion
The complaint contains a detailed explanation of what Zhao did to circumvent the bans and restrictions introduced in the U.S. In particular, it says that BAM Trading and BAM Management — a holding and an operation company — were directly controlled by Binance and were established with the only goal of soliciting U.S. customers to engage in crypto trading.
The complaint provides a detailed description of Binance’s numerous coordinated actions aimed solely at maintaining its position in the U.S. market. In general, it creates a feeling that, in the eyes of the SEC, U.S. citizens are so stupid that they are simply unable to engage in any exchange or trading activities without Gary Gensler’s protection, and the evil Zhao is always there waiting to seize the moment and take advantage of them.
Overall, the complaint leaves a mixed impression. It seems to be the highlight of the war between the SEC and its head on the one side and crypto as an economic phenomenon on the other. We can only wait for further developments because this is the moment when the fate of the U.S. crypto market will be decided: whether it will continue to develop legally or will go underground.
