- Binance and CEO Zhao are facing 13 fresh charges from the SEC.
- One of the newer allegations is wash trading on Binance.US.
- Much evidence is now emerging on how Binance was tightly tied to the operations of Binance.US.
The world’s largest crypto exchange has managed to skirt regulations in the U.S. through different means, such as operating an independent exchange called Binance.US. However, the clandestine nature of this arrangement seems to be unraveling.
In a daming investigation, Reuters reported tight controls between the parent exchange and the U.S. subsidiary, which has now led to the SEC filing a major lawsuit against Binance.
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The SEC has detailed 13 counts against Binance, including allegations that a trading firm owned and controlled by CEO Changpeng Zhao was engaging in wash trading on the platform of its US-based affiliate.
SEC’s Allegations Outlined
As part of the 136-page complaint put forward by the SEC, it has been detailed how Binance and its US-based affiliate BAM Trading Services Inc. circumvented U.S. rules by fraudulently inflating trading volume on its U.S. platform.
From around September 2019 until June 2022, a Swiss-incorporated trading firm owned by Binance founder Zhao, called Sigma Chain, allegedly engaged in the wash trading by making it seem like many more tokens were changing hands on Binance.US than actually were.
Wash trading is a form of market manipulation in which an entity simultaneously sells and buys the same financial instruments, creating a false impression of market activity without incurring market risk or changing the entity’s market position.
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The SEC complaint outlines how Sigma Chain became a market maker at Binance.US from its launch, adding multiple user accounts to trade with. As such, It held great power over how the platform’s volumes moved daily. This, allegedly, would have led to inaccurately reported trading volume “in a strategic pattern that coincided with at least three critical periods” for crypto and equity investors in such projects.
“On June 23, 2020, for example, in discussing a drop in trading volume from market makers on the Binance.US Platform, BAM CEO A asked the BAM Trading’s Sales Director to “pull [Sigma Chain’s] data to hold them accountable too . . . they should be consistent too – we can ask for more volume, but they’ve been up to 50% for us before,” the SEC complaint highlighted.
Major Trouble for Binance and Zhao
This is a new allegation that now piles on top of 12 other freshly laid charges from the SEC, not to mention the ongoing CFTC lawsuit against Binance. The CFTC, as well as the SEC, allege that Binance has been operating illegally in the US by offering unregistered derivatives contracts to US investors.
The bond between Binance and Binance.US, which is becoming more apparent, is at the heart of this significant legal strike. Still, the added allegations of wash trading place the exchange and its CEO under immense pressure.
The SEC has been going after Binance and Zhao for some time now, with a Wall Street Journal investigation also bringing to light the bond between Binance and its U.S. branch. However, the SEC feels it has enough evidence to have a real go at the global exchange.
“Behind the scenes, however, Zhao and Binance were intimately involved in directing BAM Trading’s U.S. business operations and providing and maintaining the crypto asset services of the Binance.US Platform,” the SEC complaint read.
“BAM Trading employees referred to Zhao’s and Binance’s control of BAM Trading’s operations as “shackles” that often prevented BAM Trading employees from understanding and freely conducting the business of running and operating the Binance.US Platform,” the complaint added.
On the Flipside
- In typical fashion, CZ has taken to Twitter to respond to the allegations against him. He questioned the SEC’s stated motives of protecting investors and consumers. In a Twitter poll he asked, “Who protects you more?” with Binance receiving 85% of the 245,000+ votes against the SEC.
Why This Matters
Binance is a foundational company linking millions of people to crypto. If it was to suffer catastrophic failure due to the lawsuits being laid against it, many people would be left without access to crypto.
Read more about the link between Binance and the U.S. branch:
Binance Exec. Found in Charge of Silvergate Bank Account for “Independent” Binance.US
Read more about Binance leaving Canada to the benefit of Kraken:
Kraken Scoops Up Canada Users and Deposits After Binance, OKX Leave
