Binance Faces Regulatory Trouble

June 2024

This week Binance, along with its Co-Founder and CEO Changpeng Zhao (CZ), have fallen into regulatory hot water with the US Securities and Exchange Commission (SEC) following assertions that the exchange misled customers and illegally offered its services to US customers, with thirteen securities law violations levied against the company.

In a press release on the matter, the SEC Chair Gary Gensler said: ‘Through thirteen 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. As alleged, 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 custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.’

Amongst the charges are declarations that the company misused customer funds in another company owned by CZ (similar to some of the illegal actions FTX undertook) and that they consciously tried to evade US Securities law. In response to this, Binance has refuted the allegations, stating that ‘any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong’, and claims that the SEC is merely trying to stir up headlines and highlights its lack of suitability to provide clear guidance to the crypto industry, stating that the SEC’s actions ‘undermine America’s role as a global hub for financial innovation and leadership’. 

Regardless of how Binance has acted or the SEC’s approach to this incident and others, it’s evident that the kinds of issues that are being faced by crypto companies - particularly exchanges and DeFi as a whole - would benefit from clear and watertight solutions that can prove compliance with regulations quickly and effectively. With ironclad KYC/AML provision, SEC claims like US residents illegally being given access to Binance’s services could be unequivocally shown to be false. 

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By Matthew Warner