Bitcoin value takes a hit after US regulator accuses Binance of misleading investors
American regulator has sued Binance, the world's largest crypto exchange. (Photo: Binance/Reuters)
The US Securities and Exchange Commission (SEC) filed a lawsuit against Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao on Monday (June 5). The regulator has brought forth a series of charges, including allegations of operating a "web of deception" and misleading investors, reported AP.
The world's largest cryptocurrency exchange Binance and its founder Changpeng Zhao are accused of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws in a lawsuit filed by the SEC. https://t.co/1WzTkdjEKu
— The Associated Press (@AP) June 5, 2023
This legal action has not only intensified the pressure on Binance, but also triggered a significant drop in the price of Bitcoin. The cryptocurrency reached its lowest point in nearly three months.
What are the charges?
The complaint, filed in a federal court in Washington DC, lists a total of 13 charges against Binance, Changpeng Zhao, and the operator of Binance's supposedly independent American exchange.
- According to the SEC, Binance engaged in various deceptive practices, such as artificially inflating trading volumes, diverting customer funds, and failing to enforce restrictions on US customers.
- The SEC further accused Binance of misleading investors about its market surveillance controls and alleged that Zhao and Binance secretly controlled customers' assets, allowing them to mix and divert investor funds as they wished.
- The lawsuit claims that Binance created separate US entities as part of an elaborate scheme to evade US federal securities laws.
- The SEC also alleged that Sigma Chain, a trading firm owned and controlled by Zhao, engaged in wash trading (simultaneous buying and selling to create fake market activity) on the Binance.US platform, artificially inflating the trading volume of crypto asset securities.
- The SEC states that Sigma Chain even spent $11 million from an account on a yacht.
Binance and Zhao's Response
- Binance responded to the allegations, vowing to 'vigorously defend' its platform as it said that being a non-US exchange, the SEC's actions have limited reach.
- Binance assured users that all their assets on the platform, including its US affiliate Binance US are safe and secure.
Today, the SEC filed civil claims against https://t.co/AZwoBOgsqS in what is the latest example of regulation by enforcement under the current Commission. To be clear, we believe the lawsuit is baseless and we intend to defend ourselves vigorously. However, we want to address…
— Binance.US 🇺🇸 (@BinanceUS) June 5, 2023
- They claimed to have cooperated with the SEC but expressed disagreement over the allegations.
- In multiple tweets, Zhao urged the investors to stay strong and alleged that SEC going too hard on Binance. He even launched a Twitter poll asking "Who protects you more?"
Who protects you more?
— CZ 🔶 Binance (@cz_binance) June 6, 2023
Market Impact
- The news of the lawsuit sent shock waves through the cryptocurrency market, causing Bitcoin (the largest cryptocurrency) to plummet by 6% and reach its lowest value in nearly three months ($ 25,636).
- Binance's own cryptocurrency, BNB, also experienced a significant drop of around 10% in value dipping to $ 275.12.
#bitcoin and #bnb are taking a dippy with most of the market following. No need to panic 🙂. All part of the flow. Just go with it! #CryptoTwitter #Cryptocurrecy pic.twitter.com/HDoRUxDOKS
— ÕĢ Crýptø Wïząrđ (@OGCryptoWizard) June 5, 2023
- Market analysts warn that the allegations could severely impact Binance and have broader impacts throughout the crypto industry. That's because Binance is a dominant crypto trading player, processing around $65 billion in daily trades (2022).
Ongoing legal troubles for Binance
- In March, the US Commodity Futures Trading Commission (CFTC) sued Binance for allegedly operating an "illegal" exchange and having a "sham" compliance program.
- Binance is also under scanner by the US Department of Justice for suspected money laundering and sanctions violations.
- These combined legal issues pose significant risks to Binance's operations and reputation.