Binance is being sued by the SEC for ‘billions in fraud’ after allegedly working to subvert ‘their own controls’ to allow high-net-worth U.S. investors and customers to continue trading on Binance’s unregulated international exchange.
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The Securities and Exchange Commission filed 13 charges against Binance, the world’s largest crypto exchange, and its founder, Changpeng Zhao, alleging both comingled billions of dollars worth of user funds and sent them to a European company controlled by Zhao.
The U.S. regulator alleged on Monday that Zhao and his exchange worked to subvert “their own controls” to allow high-net-worth U.S. investors and customers to continue trading on Binance’s unregulated international exchange.
One senior executive allegedly told a compliance officer that the company was operating as a ”[f—ing] unlicensed securities exchange in the USA bro.”
The complaint alleges that Binance created Binance.US as a shield for the main company and Zhao, to “reveal, retard, and resolve” law enforcement targets and insulate Binance.
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Two successive Binance.US CEOs expressed deep concern over Zhao’s level of control, according to the SEC. Both testified before federal regulators: Neither were named, but its first and second chief executives were Catherine Coley and Brian Brooks.
“I’m not actually the one running this company, and the mission that I believe I signed up for isn’t the mission. And as soon as I realized that, I left,” a former Binance.US CEO identified as “BAM CEO B” testified to the SEC.
Between June 2018 and July 2021, Binance earned $11.6 billion in revenue, most of which came from transaction fees, the complaint said. Since its inception, the exchange has “at first overtly and later furtively” worked to entice U.S. customers, at the direction and control of its founder Zhao, the SEC alleged.
Binance knew that tens of thousands of customers were in the U.S. but chose not to act, the SEC alleged, despite federal law barring the unregistered offer and sale of securities. Binance’s ultimate compliance, in 2019, was largely a public show, the SEC complaint continues.
The SEC alleges Zhao ordered the creation of an evasion plan for high-net-worth customers, using a VPN service to hide their U.S. location and submitting compliance documents to obscure their country of origin.
CNBC previously reported on how Binance employees encouraged users to evade the exchange’s “know your customer” systems through VPNs.
According to a report by Nikkei, Hong Kong is set to become a crypto trading hub with the commencement of applications for licenses to operate trading platforms and exchanges.