ALLEGATIONS AGAINST BINANCE

On Monday, the U.S. Securities and Exchange Commission (SEC) filed charges in a 136-page document accusing Binance and Binance US, of participating in “unregistered sales and offers” of crypto asset securities, while serving as a “broker-dealer, exchange, and clearing agency” without preliminary registration.

According to the SEC, amongst the illegal securities offerings of Binance are “BNB Vault” and “Simple Earn,” its yield-generation schemes, alongside BNB the native token of the platform, and BUSD its stablecoin. Currently, BNB is the 4th largest cryptocurrency by market capitalization, and Binance is in possession of a considerable portion of its total supply.

Without the mistake typical of broker-dealers and registered exchanges, the SEC claims Binance also transferred and combined the assets of customers in ways that regulated firms wouldn’t have been able to.

An example given by the agency was that Binance and Binance US merged billions of dollars in user assets from both platforms inside an entity called “Merit Peaked Limited”, which is managed by both Binance and its CEO, Changpeng Zhao (CZ).

And similar to what former FTX boss Sam Bankman-Fried did at his now-collapsed exchange, those assets were then transferred to third parties.

The lawsuit in general claimed that CZ and Binance exerted control over Binance US and the assets on its platform, despite feigning ignorance of independence from the American entity.

In addition, it accused Binance of stealthily servicing its most valuable US clients at the international exchange, as claimed by the Commodities and Futures Trading Commission in March.

Finally, the SEC claimed “Sigma Chain” is a Zhao-controlled entity that is engaged in wash trading at Binance US to inflate trading volume and the value of some assets on the platform. This was made possible because the entity failed to implement the “surveillance” that was promised to investors by the management of the firm.

BINANCE’S RESPONSE TO THE ALLEGATIONS

To punish Binance for violating the law, the SEC wants to ban Binance from the securities and crypto trading businesses and ensure it is penalized for any of its illegal profits that came as a result of its actions, including pre-judgment interest.

Binance accused the SEC in a public response letter stating that instead of prioritizing investors, they simply attempt to gain “jurisdictional ground” in overseeing crypto against other regulators.

According to the company, “All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary.”

Binance also denied claims made by Reuters last month that it had mixed corporate funds with user funds, stating that any “mixing” that happened was simply for the purpose of converting users’ dollar deposits into BUSD.

LAWSUIT AGAINST COINBASE

Just one day after launching charges against Binance, the (SEC) has filed a 101-page lawsuit against Coinbase – America’s largest cryptocurrency exchange.

• Similar to the charge against Binance, the agency claimed that Coinbase has defaulted by failing to register as either a national securities exchange, broker, or clearing agency, despite serving in all three capacities.
• Coinbase was also accused of disobeying securities laws by making available assets that passed the Howey Test for trade on its exchange.
• Large-cap assets including SOL, ADA, and MATIC were named among those securities by the agency
• According to the commission, “Coinbase has elevated its interest in increasing its profits over investors’ interests, and over compliance with the law and the regulatory framework that governs the securities markets.”
• In addition, the SEC said Coinbase did not register its staking-as-a-service product, hence “investors were deprived of material information about the program.” However, Coinbase had already anticipated such a lawsuit months ago but insisted that its staking products are not securities.
• As a consolation, the SEC wants to Coinbase to “turn in their illegal profits and also pay prejudgment interest.”

Featured Image Source: Blockchair