SEC sues Coinbase following move against Binance, CZ

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The U.S. Securities and Exchange Commission (SEC) has initiated the next phase of its crackdown on the cryptocurrency industry, taking aim at two leading platforms, Binance and Coinbase.

In a move to enforce regulatory compliance, the SEC filed lawsuits against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng “CZ” Zhao. The agency accused them of orchestrating a complex “web of deception.”

Simultaneously, Coinbase, one of the largest cryptocurrency exchanges in the U.S., is facing allegations of operating as an “unregistered broker, exchange, and clearing agency,” exposing its customers to potential risks.

Aside from being a crypto exchange, Binance is also actively investing in businesses outside of the blockchain industry.

The company sponsors the Italian football team Lazio and the Argentina national team, among others. It was also named the official sponsor of the TotalEnergies Africa Cup of Nations (AFCON 2021) tournament.

Its trades accounted for up to 70 percent of the market last year, with billions of dollars flowing through the exchange on a daily basis. However, as regulatory pressures intensified, Binance’s market share experienced a decline, although it still maintains around 50 percent of the monthly crypto exchange volume.

In response to mounting regulatory scrutiny in 2019, Binance implemented access restrictions to its primary exchange,, for U.S.-based users.

As a countermeasure, the company introduced Binance.US as a separate entity, positioned as an independent exchange adhering to U.S. regulations, intending to operate legally within the country.

Serious allegations

The SEC’s allegations revolve around the claim that Binance and CZ did not genuinely separate Binance.US from its parent exchange. Despite public assertions that Binance.US operated independently, the SEC alleges that high-value U.S. customers were covertly permitted to engage in trading activities on

According to the SEC, Binance misused its power to transfer large sums of money to accounts belonging to other companies controlled by Zhao, namely Merit Peak and Sigma Chain. In one instance, it was alleged that one of these accounts used the funds to purchase an $11 million yacht.

The lawsuit further claims that Binance and Zhao knowingly acted to evade regulatory oversight, a practice well-recognized within the company.

The SEC asserts that Binance generated substantial revenue of at least $11.6 billion from U.S. customers between June 2018 and July 2021, despite operating as an unlicensed securities exchange in the United States.

One of the company’s executives, the chief operating officer, allegedly acknowledged their unlicensed status and made a crude comment about it to a compliance officer in 2018.

“We are operating as a … unlicensed securities exchange in the USA bro,” the executive told another compliance officer.

The SEC further asserts that Binance.US unlawfully offered commodity derivatives to U.S. customers without registering with the appropriate derivatives markets regulator. Its complaint includes compelling evidence that suggests the Binance leadership was well aware of their violations of U.S. regulations.

Internal messages presented as evidence in the lawsuit reveal Binance’s chief compliance officer acknowledging their operation as an “unlicensed securities exchange in the USA.”

The SEC claims that CZ diverted assets to an entity called Sigma Chain, personally owned and controlled by him, to facilitate “wash-trading” and artificially inflate Binance.US’ trading volume.

Chain reaction

These legal actions by the SEC against Binance and Coinbase come in the wake of the collapse of FTX, another prominent cryptocurrency platform.

FTX founder Sam Bankman-Fried now faces charges of securities fraud, money laundering and other offenses. The SEC’s actions indicate a broader commitment to tightening regulations within the cryptocurrency industry.

Coinbase is also currently under scrutiny from the SEC, with allegations of regulatory violations. The company is accused of operating as an unregistered national securities exchange, broker and clearing agency. The SEC claims that Coinbase failed to register its crypto asset staking-as-a-service program for the offer and sale of tokens.

The complaint declares that since at least 2019, Coinbase has unlawfully facilitated the trading of crypto asset securities, combining the functions of an exchange, broker and clearing agency without proper registration.

According to the charges, Coinbase’s actions have allegedly deprived investors of important protections and oversight provided by the SEC, such as inspection, recordkeeping requirements and safeguards against conflicts of interest.

Binance’s response

Binance has responded to the recent charges filed against it by SEC. The company said that it had been cooperating with the financial watchdog throughout its investigation and disagreed with the allegations made against it.

Binance reaffirmed its intention to defend its platform vigorously and claimed that the SEC’s actions have limited jurisdiction since Binance is not a U.S.-based exchange.

Binance criticized the SEC’s approach to regulating the cryptocurrency industry, claiming it relies too heavily on enforcement and litigation rather than a more nuanced understanding of the complex technology involved.

The company also argued that any claims suggesting that user assets on the Binance.US platform have been at risk were false.

The news of the charges had a significant impact on the price of Bitcoin, causing it to reach its lowest point in nearly three months.

However, Binance is not facing a collapse similar to what happened to FTX last year, which led to a 25 percent drop in Bitcoin’s price. Binance seeks to reassure its customers by emphasizing the safety and security of user assets on its platforms, including Binance.US.

Zhao’s prominence in the crypto industry has been further amplified by these recent events, particularly in light of the decline of his competitor, Bankman-Fried.

The SEC’s actions against Binance and Coinbase indicate a broader crackdown on cryptocurrency firms that the SEC perceives as evading regulations.

The agency aims to regulate cryptocurrencies and ensure compliance among companies, viewing them as either new entities necessitating unique regulatory frameworks or digital versions of existing financial instruments already subject to SEC regulations.

These enforcement actions and the SEC’s stance significantly affect the cryptocurrency sector. The industry is already experiencing a “winter” due to the FTX collapse and reduced investments.

In the United Kingdom, prime minister Rishi Sunak has previously shown some support for the crypto sector, but there has been a recent shift towards stricter regulations. Discussions have considered classifying cryptocurrencies as a form of gambling, reflecting Sunak’s increasing focus on artificial intelligence.

The SEC’s interpretation of U.S. law could have detrimental effects on numerous crypto companies and might compel them to seek more favorable jurisdictions. However, finding regulatory havens is becoming increasingly challenging.


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