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SEC files back-to-back lawsuits against two crypto companies

On Behalf of | Jun 12, 2023 | Government Regulation

The Securities and Exchange Commission (SEC) filed a lawsuit with 13 charges in the U.S. District Court for the District of Columbia against Binance, the world’s busiest crypto exchange, and its co-founder and CEO Chanpeng Zhao. This move continues a string of actions the federal regulator has taken against crypto companies and is the highest-profile action since the spectacular collapse of FTX in November 2022. That action involved the extradition of former founder and CEO Sam Bankman-Fried, who was released on a $250 million bond and sentenced to 100 years in prison.

The list of Binance charges includes:

  • Misleading investors about the company’s ability to detect market manipulation
  • Misusing customer funds and sending some of the money to a company controlled by Zhao
  • Not registering a crypto trading platform used by U.S. customers – the company claims it was off limits to American investors

SEC Chairman Gary Gensler accused Zhao and Binance of engaging in “an extensive web of deception,” which included lack of disclosure, conflicts of interest, and intentionally avoiding U.S. securities laws.

While the Binance charges are less extensive and severe than FTX’s, Binance has grown significantly since the latter’s collapse. Its dramatic rise made it a target for regulators like the SEC and law enforcement agencies worldwide.

Binance.US (the U.S.-based branch) claims the charges are baseless and said it would vigorously defend itself. Despite the company’s claim, the SEC has a strong case, including a 2018 correspondence of Binance’s chief compliance officer acknowledging to a coworker that the company was breaking the law.

Coinbase charged the following day

On June 6, the SEC announced a lawsuit in the Southern District of New York against Coinbase, Inc., which also operated a crypto asset trading platform as an unregistered national securities exchange, clearing agency and broker. The SEC alleges that Coinbase, the largest U.S. cryptocurrency exchange, failed to register the offer and sale of crypto asset staking-as-a-service program with the regulator.

The SEC alleges that Coinbase was fully aware that it was required to follow securities laws but deliberately chose not to comply. This reckless action deprived investors of certain protections outlined by the Securities Exchange Act of 1933. Founded in 2012, Coinbase has served more than 108 million customers, and the exchange ended last March with $130 billion in assets and $3.15 billion in net revenue.

The lawsuit seeks fines for ill-gotten gains and injunctive relief.