US authorities on Monday charged cryptocurrency giant Binance with securities law breaches that amounted to what they called “an extensive web of deception” and “calculated evasion of the law”.
Binance is alleged to have permitted US residents to trade, even though the platform is not registered in the United States as a securities exchange. The case also alleges Binance misused customer funds.
The Securities and Exchange Commission filed a civil complaint listing 13 charges involving platforms and other investment entities controlled by founder Changpeng Zhao, who was once seen as the archrival of disgraced crypto tycoon Sam Bankman-Fried.
The SEC case comes on the heels of charges in March by another US regulator, the Commodities Futures and Exchange Commission.
Mr Zhao and Binance publicly claimed that US customers were barred from transacting on Binance.com, but the platform “secretly” allowed high-value customers to keep trading, the SEC said.
Mr Zhao maintained a site for customers in the US called Binance.us was independent of Binance, but was “secretly controlled” by Binance “behind the scenes,” according to the complaint.
The agency also alleged that Zhao and Binance “commingled” customer assets, including to another Zhao-controlled entity, Signa Chain, which “engaged in manipulative trading that artificially inflated the platform's trading volume,” the SEC said.
“Through 13 charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said SEC Chair Gary Gensler.
“Mr Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodies.”
Mr Zhao said the Binance “team is all standing by, ensuring systems are stable, including withdrawals, and deposits,” he said on Twitter.
“We will issue a response once we see the complaint. Haven't seen it yet. Media gets the information before we do.”
News of the case dented bitcoin prices, which fell about two per cent following headlines of the charges.