Since the fall of FTX seven months ago, the Securities and Exchange Commission (SEC) has orchestrated a massive crackdown on the $1 trillion cryptocurrency market. But the Binance case represents Gensler’s biggest attack yet, with the agency taking a massive swing against the exchange and its high-profile CEO. At one point in the complaint, the SEC alleged that customer funds were “at the mercy of Binance and Zhao.”
Binance denied the SEC’s allegations in a blog post, including claiming that customer assets on Binance.US were at risk. The company said it was “disappointed” with the SEC’s decision to take the case to court after the two sides engaged in talks about a settlement.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone an emergency,” the company wrote in the post. “We are determined to vigorously defend our platform.”
Founded in 2017, Binance has appeared on the scene relatively late compared to other cryptocurrency companies like Coinbase and Kraken. But the exchange quickly grabbed market share overseas, and in 2019, it announced it was setting its sights on the United States.
However, US regulators claimed that Binance was in the states the whole time. The Securities and Exchange Commission said Monday that the subsidiary created in 2019 — Binance.US — was “part of an elaborate scheme to evade US federal securities laws” and continue to funnel some “high net worth US clients” to the main Binance exchange.
“We operate as an unlicensed securities exchange in the United States of America,” another former Binance executive said in December 2018, according to the SEC’s complaint.
Among other allegations against Binance was that the exchange operated an unregistered national securities exchange, broker-dealer, and clearing agency.
The SEC also said that Binance US failed to properly monitor trading in its market as it claimed to do. In contrast, Sigma Chain, a trading company owned by Zhao, was allegedly able to artificially inflate trading volumes on Binance.US through a trade laundering scheme, according to the SEC.
Zhao has long been one of the most influential names in crypto. In late 2022, as fears spread that FTX was on edge, Zhao raised alarm before vowing to take over the exchange — an offer he soon retracted, paving the way for FTX’s eventual bankruptcy. He reportedly once approached Gensler about advising Binance, an offer the then MIT professor declined.
However, while Zhao boasts a massive following online and in the crypto market, many in Washington view him and his company with skepticism.
His longstanding refusal to locate the stock exchange has infuriated regulators around the world. And the US authorities have been spinning for months. In March, the CFTC hit first series of similar accusations It was caused by the exchange’s US operations, and Reuters reported that the Department of Justice is also investigating the exchange.
For the cryptocurrency market more broadly, the SEC’s lawsuit against Binance is already having ripple effects. This is because in the complaint, the agency named dozens of tokens trading on Binance that it believed were unregistered securities — possibly opening others in the market who trade under these names to regulatory risk.
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