Compilation | BlockingNews On the evening of June 5th, Beijing time, the US Securities and Exchange Commission (SEC) filed a lawsuit against cryptocurrency exchange Binance Holdings Limited (“Binance”), BAM Trading Services Inc. (“BAM Trading”), BAM Management US Holdings Inc. (“BAM Management”), and Changpeng Zhao.
In the 136-page complaint, what exactly did the US Securities and Exchange Commission focus on with Binance? This article summarizes 13 key points:
1. The US Securities and Exchange Commission stated that the reason for suing Binance was because Binance blatantly disregarded US federal securities laws and the investor and market protections provided by those laws, and the defendants obtained billions of dollars in wealth while placing investors’ assets at significant risk.
2. The defendants participated in the sale and offering of numerous unregistered crypto asset securities and other investment plans through Binance.com (“Binance.com Platform”) and Binance.US (“Binance.US Platform”), collectively referred to as the “Binance Platform.” BAM Trading and BAM Management deceived stockholders, retail investors, and institutional investors by claiming to monitor and control manipulative trading on the Binance.US platform, when in reality such trading was virtually nonexistent.
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3. The US Securities and Exchange Commission believes that under the leadership and control of Changpeng Zhao, Binance and BAM Trading did not apply for registration with the US Securities and Exchange Commission, but illegally provided three basic securities market functions – exchanges, broker-dealers, and clearing agencies – on the Binance platform. The US Securities and Exchange Commission stated that the defendants were keenly aware that US law requires registration for these functions, but chose not to register, thus evading critical regulatory oversight aimed at protecting investors and markets.
4. Furthermore, the US Securities and Exchange Commission stated that Binance and BAM Trading illegally engaged in the sale and offering of unregistered crypto asset securities, including Binance’s own “BNB” and “BUSD” crypto assets, as well as Binance’s “BNB Vault,” “Simple Earn,” and so-called “staking” investment plans offered on the Binance platform. In providing such services, the regulatory agency believes that Binance deprived investors of the right to disclose important information, including risks and trends affecting the company and investments in these securities.
5. Third, when BAM Management raised approximately $200 million from private investors, BAM Trading and BAM Management made false statements to investors, claiming that the Binance.US platform attracted billions of dollars in trading from both retail and institutional investors.
6. Starting around 2018, in order to evade US federal securities law registration requirements, and under Zhao Changpeng’s control, the defendants designed and implemented a secret, multi-step plan to circumvent US law. Binance’s chief compliance officer (“Binance CCO”) previously admitted: “We [Binance].com did not want to be subject to regulation forever.”
7. As part of their plan to evade US regulation of Zhao Changpeng, Binance, and the Binance.com platform, Zhao Changpeng and Binance created two entities in the United States, BAM Management and BAM Trading, and publicly claimed that these two entities independently controlled the operation of the Binance.US platform. However, behind the scenes, Zhao Changpeng and Binance were closely involved in guiding BAM Trading’s operations in the United States, and providing and maintaining the cryptocurrency asset services needed for the Binance.US platform. BAM Trading employees referred to Zhao Changpeng and Binance’s control over BAM Trading’s operations as a “shackle,” often hindering BAM Trading employees from understanding and freely carrying out the operational work of the Binance.US platform—so much so that in November 2020, BAM Trading’s then-CEO told Binance’s CFO that “her entire team feels cheated and like they have become puppets.”
8. As part of their plan to protect themselves from US regulation, Zhao Changpeng and Binance have always publicly claimed that the Binance.com platform does not serve Americans, but Binance has been working to serve high-value American clients, but has deliberately concealed this fact. In 2019, when Binance.US was launched, Binance announced that it was implementing controls to prevent US customers from accessing the Binance.com platform, but in fact, Binance did the opposite. Zhao Changpeng instructed Binance to assist certain high-value American clients in evading regulatory controls, and secretly took measures that, as Zhao Changpeng himself admitted, Binance did not want to “take responsibility” for. Binance’s chief compliance officer previously admitted that “on the surface, Binance does not have US users, but in fact, Binance should attract them through other creative means.” Indeed, Zhao Changpeng’s “purpose” was to “reduce Binance’s losses while avoiding trouble from US regulators.”
9. The US Securities and Exchange Commission believes that the defendants intentionally evaded US regulation while providing securities-related services to US clients, putting billions of dollars of US investor capital at risk and being manipulated by Binance and Zhao Changpeng. Without regulation, the defendants can freely transfer investors’ cryptocurrency and fiat assets as they wish, sometimes mixing and transferring these assets in a way that registered brokers, dealers, exchanges, and clearing agencies cannot. For example, billions of dollars in customer funds from two Binance platforms are mixed and transferred to third parties related to the buying and selling of cryptocurrency through accounts owned and controlled by Zhao Changpeng and Binance.
10. The US Securities and Exchange Commission believes that, for cryptocurrency trading platforms, the defendants are actually very aware of the importance of implementing trading supervision and control over cryptocurrency asset investors. Zhao Changpeng said in 2019, “Reputation is the most important asset for any exchange! If the exchange falsifies trading volume, will users entrust their funds to them?”
11. Defendants BAM Trading and BAM Management have touted that they have implemented control measures to prevent manipulation of trading on the Binance.US platform.
12. The defendants did not implement the trading monitoring or manipulation control promised to investors by BAM Trading and BAM Management on the Binance.US platform. Therefore, the defendants failed to meet the basic requirements of a registered exchange, that is, to formulate rules to prevent fraudulent and manipulative behavior, and the defendants do not have the ability to achieve this goal. The US Securities and Exchange Commission believes that the so-called trade control does not actually exist, and the controls that do exist do not monitor or prevent “false transactions” or “self-trading” on the Binance.US platform.
Most notably, from at least September 2019 to June 2022, Sigma Chain AG, a trading company owned and controlled by Zhao Changpeng, engaged in wash trading, artificially inflating the trading volume of cryptocurrency securities on the Binance.US platform.
13. The US Congress enacted the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) to regulate the issuance and sale of securities, the US national securities market, including a series of requirements such as information disclosure, record keeping, inspection, and conflict of interest mitigation. Binance and BAM Trading, controlled by Zhao Changpeng, have engaged in and will continue to engage in unregistered sales and sales of cryptocurrency securities, and conduct unregistered cryptocurrency securities transactions on the Binance platform, combined with core securities market functions, while intentionally avoiding registration. In the process of executing the operation, the defendants have bypassed the disclosure and other requirements established by the US Congress and the US Securities and Exchange Commission over the past few decades to protect the capital market and investors, thus violating (and will continue to violate) the law.
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