SEC Sues World’s Largest Crypto Exchange

After repeated warnings, the Securities and Exchange Commission has filed a sweeping lawsuit against Binance and its founder Changpeng Zhao, charging that the world’s largest cryptocurrency exchange has mishandled customer funds, illegally operated as an unregistered exchange, and lied to regulators about its operations.

The suit, which comes three months after the Commodity Futures Trading Commission sued Binance, alleges that Zhao and Binance secretly diverted customer assets to two separate entities owned by Zhao, and engaged in manipulative buying and selling of cryptocurrencies that artificially inflated Binance’s trading volume.

“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,” said SEC Chairman Gary Gensler. “The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

The charges lay out an operational scheme that completely ignores the rules under which investment firms must operate. Binance, according to the SEC, combines the functions of serving as an exchange, a broker, a dealer, and a clearing agency that registers and transfers ownership of securities, creating conflicts of interest and allowing the company to engage in market manipulation. The suit also says Zhao and Binance repeatedly lied to regulators and to investors about its controls to detect and prevent manipulative trading.

Since July 2017, Binance has generated at least $11.6 billion in revenue from U.S. customers, according to the SEC.

In addition to seeking penalties and disgorgement of illegally gained funds, the suit seeks to bar Zhao from serving as an officer or director of Binance or any other firm that issues securities.

Binance may face criminal charges on top of the SEC’s civil charges, as the U.S. Justice Department is reportedly investigating Binance for engaging in money laundering.