The U.S. Securities and Exchange Commission has filed a new lawsuit against Binance, the world’s largest crypto exchange. The lawsuit also involves co-founder and CEO Changpeng “CZ” Zhao, with accusations of violating U.S. securities laws.
According to a document related to the filing, Binance has allegedly solicited U.S. investors to participate in the buying, selling and trading of crypto asset securities through unregistered online trading platforms known as Binance.com and Binance.US.
The document also claimed that Binance had conducted various unregistered offers and sales of crypto asset securities and other investment schemes.
According to the SEC, the Binance platforms operate as broker-dealers, clearing agencies and exchanges without proper registration. The commission also identified certain tokens and services offered by Binance as securities. Binance Coin (BNB) and BUSD, a stablecoin issued by Paxos, were classified as security tokens.
The lawsuit represents the latest step in the U.S. regulators’ ongoing crackdown on the cryptocurrency industry. In recent months, the SEC has taken action against Kraken, Genesis and Gemini Trust for offering unregistered securities. Coinbase has also received warnings about possible securities charges by the SEC.
Since the report emerged, Solana, Cardano, Polygon, Filecoin, Cosmos, Sandbox, Decentraland, Algorand, Axie Infinity and COTI prices have started to dip. These tokens have also come under the SEC’s radar.
If #Bitcoin reaches $25,000,
— Mister Crypto (@misterrcrypto) June 5, 2023
In response to the suit, Binance reiterated its commitment to engaging productively to foster innovation and protect consumers within the cryptocurrency industry.
“Because Binance is not a U.S. exchange, the SEC’s actions are limited in reach,” said a Binance representative. “Still, we stand with digital asset market participants in the U.S. in opposition to the SEC’s latest overreach, and we are prepared to fight it to the full extent of the law. “
Binance also said it took the SEC’s complaint seriously. However, the exchange maintained that these allegations should not be the basis for an SEC enforcement action, especially not on an expedited basis, saying that it was unjustified.
The SEC claimed that Binance and Binance.US combined customers’ funds in an account controlled by CZ’s entity, Merit Peak Limited. These funds were then transferred to a third-party provider to trade crypto assets.
Meanwhile, Binance said that it ensures the safety and security of all user assets on Binance and Binance affiliate platforms, including Binance.US. The company will defend against any allegations suggesting otherwise.
Binance has also suspected that the SEC’s actions are motivated by an attempt to quickly establish jurisdictional authority over other regulators.
Effects of the lawsuit
The lawsuit pushed cryptocurrency prices down on Monday. Bitcoin experienced a 5.5 percent decline, reaching its lowest level since March, as reported by Coin Metrics. Meanwhile, Ether dropped to $1,807.79.
“Binance is the largest cryptocurrency exchange by trading volume so it’s no surprise that the market is responding the way it is to the news,” said Swan Bitcoin lead analyst Sam Callahan.
“Any regulatory action against a major player in the cryptocurrency space creates uncertainty and leads to increased market volatility in the short term.”
However, Callahan said this volatility might be temporary, and prices might rise once the market gets used to the news. In the long term, the lawsuit may be a positive development for the ecosystem. It can help remove bad actors and direct capital away from cryptocurrencies with high regulatory risk and toward Bitcoin.