The United States Securities and Exchange Commission (SEC) filed charges against Binance, its U.S.-based exchange platform and its CEO Changpeng Zhao for violating American securities laws.
On June 5, SEC filed 13 charges against Binance in the District Court of Columbia over allegations that the company misled investors and misused customer funds. The accusations of mishandling customers’ funds and violations of U.S. banking regulations were first flagged in a report published by Reuters in the last week of May. At the time, Binance had refuted all the allegations and called the report a list of conspiracy theories.
According to the regulator, Binance has been mixing “billions of dollars” in user assets and covertly moving them to a different firm under CZ’s control. The accusations included misrepresenting to investors the effectiveness of the company’s mechanisms for identifying and preventing manipulative trading.
Regulators further alleged that Binance had not done enough to prevent American investors from using its unlicensed exchange. Some of the key allegations in the lawsuit include:
- Zhao and Binance secretly controlled the Binance US platform’s operations behind the scenes.
- Zhao and Binance exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets.
- BAM Trading (the entity that controlled Binance.US) misled investors about non-existent trading controls over the Binance.US platform.
- Binance and BAM Trading were operating unregistered national securities exchanges, broker-dealers, and clearing agencies.
- Binance and BAM Trading were involved in the sale of securities including Binance’s own crypto assets, including the exchange token, BNB, a stablecoin, Binance USD (BUSD), certain crypto-lending products, and a staking-as-a-service program.
The list of 13 charges against the crypto exchange by the SEC comes within months of another lawsuit filed by the U.S Commodity Futures Trading Commission (CFTC) in March invoked various reactions from the crypto community, the most prominent being the divide over Binance’s approach (Tai chi) and U.S regulators alleged “Operation Chokepoint 2.0”
The “Tai chi” reference comes from a 2020 Forbes report that alleged that Binance has incorporated a series of steps to evade regulators in the U.S. naming it as a “Tai Chi entity.” Tai Chi is a Chinese term used to describe a method to evade responsibility. At the time Binance threatened to sue Forbes over these claims.
1/ If you are ever contacted by an individual named “Michael Del Ray” @DelRayMan from @ForbesCrypto @Forbes , do yourself a favor and block this individual immediately.
I will show in this thread how this individual plagiarized me for a huge @binance expose ; @PENamerica pic.twitter.com/PmuczsAq43
— James Edwards (@librehash) February 12, 2021
Operation Chokepoint 2.0, on the other hand, is a term created by Coin Metrics co-founder Nic Carter to refer to an alleged effort by U.S. lawmakers and regulators to strife the growth of crypto.
Both theories resurfaced on June 5 after the SEC lawsuit where Cardano founder Charles Hokinson fueled the “chokepoint 2.0” theory. Hoskinson claimed that the SEC’s next in a series of steps is “to implement chokepoint 2.0 in the United States. The end goal is an agenda-based CBDC partnered with a handful of massive banks and end-to-end control over every aspect of your financial life. “
With respect to Binance, I’m reading through the SEC complaint. It’s over 130 pages, but seems like the next in a series of steps to implement chokepoint 2.0 in the United States. The end goal is a agenda based CBDC partnered with a handful of massive banks and end-to-end control…
— Charles Hoskinson (@IOHK_Charles) June 5, 2023
Many on crypto Twitter who have been voicing their concerns against Binance’s regulatory troubles claimed that the “operation chokepoint 2.0” theory is nothing more than a conspiracy in the case of the Binance lawsuit as the exchange was clearly selling securities.
Related: Binance plans new round of layoffs amid increased regulatory scrutiny
Tai Chi found a reference in the SEC lawsuit itself which made many on crypto Twitter recall the 2020 report.
12. Tai Chi!
Binance had a plan called “the Tai Chi Plan” meant to “reveal, retard, and resolve built-up enforcement tensions” in the US.
As it became clear its US business was violating laws, CZ wanted to help route VIP US investors offshore to create plausible deniability. pic.twitter.com/Q2vyfHxqWv
— Compound248 (@compound248) June 5, 2023
Many others in the crypto community believed that the lawsuit against Binance isn’t usual given the regulators seldom name executives and thus Binance might be looking at a massive settlement at best.
“I’ve never seen the SEC attempt to try a case in the court of public opinion. Usually they wait until after a case is settled to brag.” – A former SEC official who wished to remain anonymous.
Do you think the @SECGov is sensationalizing the case before it goes to court? https://t.co/SpCM1IoBng
— Eleanor Terrett (@EleanorTerrett) June 5, 2023
Others were quick to remind the public that the charges are against the U.S. arms of Biannce which handles a minute portion of the global Binance crypto exchange’s trading volumes.
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