On June 5th, Binance and its CEO “CZ” were sued by the US Securities and Exchange Commission (SEC) for allegedly violating securities trading rules. The lawsuit accuses Binance Holdings Limited, BAM Trading Services, and BAM Management of America Holdings of violating federal securities laws by promoting cryptocurrency securities to US investors and issuing and selling unregistered cryptocurrency securities and other investment plans on unregistered online trading platforms on Binance.com and Binance.US. The defendants allegedly profited billions of dollars from this scheme while placing investors’ assets at significant risk.
Based on past history, cryptocurrency projects investigated by the SEC have had a difficult time escaping with just a financial penalty. How severely will Binance and CZ be punished in this case? BlockBeats has compiled a summary of past investigated projects and their fine amounts:
Bloom Protocol – $30.9 million
Reason for lawsuit: SEC accused it of conducting an ICO for “unregistered securities” tokens
Amount fined: $30.9 million
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On August 10, 2022, the SEC ordered cryptocurrency start-up Bloom Protocol to register its tokens or face a $31 million fine. Currently, the US Securities and Exchange Commission has issued a cease-and-desist order against Bloom Protocol, accusing it of conducting an unregistered cryptocurrency securities ICO. Bloom has promised to register the tokens and compensate harmed investors, or else pay a fine of up to $30.9 million.
Kraken – $30 million
Reason for lawsuit: suspected of offering unregistered securities to US investors
Amount fined: $30 million
On February 9, 2023, cryptocurrency trading platform Kraken is under investigation by the SEC to determine whether it violated certain provisions related to offering unregistered securities to US investors. The current investigation is in the later stages, and it is unclear which tokens or products are being reviewed.
On February 10, Kraken reached a settlement with the SEC and paid a $30 million fine, while also immediately terminating its crypto staking service for US customers.
Block.One (EOS) – $24 million
Reason for lawsuit: accused of raising billions of dollars in the near year-long ICO with unregistered initial coin offerings
Settlement Amount: $24 million
In September 2019, the SEC sued Block.One, alleging that the company provided investors with false and misleading information about EOS, an unregistered security offered by Block.one. As part of the settlement, Block.one agreed to pay a $24 million fine. For Block.one, the fine amounted to just a small fraction of its total fundraising of $4 billion, representing only 0.6% of the total amount raised.
EOS, which was the largest-ever fundraising in the cryptocurrency industry, had a significant impact on how subsequent crypto industry professionals viewed regulation. At the time, there was a saying in the community that “a $24 million fine for a $4 billion raise is not a punishment, it’s an encouragement.”
Following the announcement of the settlement, the price of EOS rose by 10%.
Tezos – $25 million
Reason for the lawsuit: Conflicts between founders and the foundation led to a delay in the launch of the Tezos mainnet, causing investors to not receive XTZ for a long time.
Amount fined: $25 million
In July 2017, Tezos launched an ICO and raised $232 million. But while the foundation was making a lot of money, Tezos co-founders Arthur and Kathleen accused Tezos Foundation President Johann Gevers of issuing $1.5 million worth of XTZ without authorization in October 2017 and sued Dynamic Ledger Solutions, demanding that it pay $25 million in settlement compensation.
The conflict between founders and the foundation directly led to delays in the launch of the Tezos mainnet. The law firm Block & Leviton began investigating Tezos in October 2017 and formally filed a class-action lawsuit against Tezos on behalf of nearly 30,000 investors in mid-December.
Finally, the Tezos class-action lawsuit lasted nearly three years. In March 2020, the Tezos Foundation announced that it was seeking a settlement and paid a $25 million fine to the SEC.
LBRY – $20 million
Reason for the lawsuit: LBRY sold its native LBC Token without registering with the SEC, violating securities laws.
Amount of fine: 20 million US dollars
On November 8, 2022, cryptocurrency company and blockchain content distribution platform LBRY was accused of selling its native LBC Token without registering with the SEC, violating securities laws. On December 1, LBRY announced that it had lost the case and stated that it “has been killed by US law and debt, while the LBRY protocol and blockchain will continue to exist, LBRY Inc. must die”. Jeremy Kauffman, CEO of LBRY Inc. stated that the company has not yet received a specific fine amount from the US Securities and Exchange Commission, but estimates it will be $20 million.
NVIDIA – $5.5 million
Reason for lawsuit: Failure to disclose the impact of cryptocurrency mining on the company’s business
Amount of fine: $5.5 million
On May 6, 2022, the SEC disclosed a settlement charge against technology company NVIDIA Corporation (NASDAQ: NVDA) for failing to fully disclose the impact of cryptocurrency mining on the company’s gaming business. It is reported that NVIDIA has refused to respond to the SEC’s investigation results, but has agreed to pay a fine of $5.5 million.
Kik Interactive (Kin) – $5 million
Reason for lawsuit: Selling digital asset securities to US investors without registering the offering and sale as required by US securities laws
Amount of fine: $5 million
On October 21, 2020, the US Securities and Exchange Commission (SEC) announced that the federal district court had issued a final judgment in the case of Canadian communication platform Kik Interactive Inc., ruling that Kik had violated federal securities laws in the $100 million ICO in 2017.
On June 4, 2019, the SEC filed a lawsuit in the US District Court for the Southern District of New York, alleging that Kik had sold digital asset securities to US investors without registering the offering and sale as required by US securities laws. On September 30, 2020, the court approved the SEC’s motion for summary judgment, ruling that Kik’s “Kin” Token sales were sales of investment contracts and therefore securities sales, and that Kik violated federal securities laws when it conducted the transactions. Kik also needs to pay a fine of $5 million.
Friedman LLP (Tether’s former auditing firm) – $1 million
Reason for lawsuit: “Repeatedly breaking federal securities laws” and engaging in many instances of “improper professional conduct.”
Amount fined: $1 million
On September 27th, 2022, the SEC filed a lawsuit against Friedman LLP, the former auditing firm for Tether, for “repeatedly breaking federal securities laws” and engaging in many instances of “improper professional conduct.” A settlement has been reached with the firm. As part of the settlement agreement with the SEC, Friedman LLP has agreed to provide appropriate audit procedure training to its employees and pay a civil penalty of $1 million and $564,138 in illegal gains and interest. Friedman LLP provided audit services to Tether from May 2017 to January 2018.
EtherDelta – $388,000
Reason for lawsuit: Operating an unregistered digital currency exchange
Amount fined: $388,000
The U.S. Securities and Exchange Commission (SEC) has sued Zachary Coburn, founder of the digital currency exchange EtherDelta, for operating an unregistered digital currency exchange. Stephanie Avakian, co-director of the SEC’s enforcement division, stated that EtherDelta should have either registered with the SEC or qualified for an exemption from registration.
On November 8th, 2018, the SEC announced that Zachary Coburn had agreed to pay $300,000 in disgorgement, $13,000 in prejudgment interest, and a $75,000 penalty to the U.S. Securities and Exchange Commission (SEC).
Telegram (TON) – $18.5 million, return $1.224 billion
On December 3rd, 2017, TON released a 132-page white paper. In order to raise funds, on January 12th, 2018, TON officially announced the ICO. TON had originally planned to divide the closed financing into three stages, but the third stage was canceled when it raised $1.7 billion in funding, twice the expected amount, in just the second stage.
On October 12th, 2019, just as the TON mainnet was about to go live, the U.S. Securities and Exchange Commission (SEC) suddenly sent a lawsuit letter. In the lawsuit letter, the SEC stated that they had classified the financing process of GRAM as “online illegal digital asset securities sales” and were prepared to file an “emergency action and obtain a temporary restraining order” against two offshore entities that participated in its Token GRAM private placement, citing violations of securities laws.
In the courtroom, in order to limit the sale of GRAM, the US court made an incomprehensible demand. The court not only prohibited Telegram from selling GRAM in the United States, but also globally. Helpless, Telegram had to announce the abandonment of TON.
On May 12, 2020, founder Pavel Durov announced in the Telegram public channel that the Telegram Open Network (TON) project was terminated. Telegram will return $1.224 billion (70%) of the $1.7 billion raised to investors, and must pay a civil fine of $18.5 million to the SEC. If the company wants to try selling Tokens again, it must notify the SEC 45 days in advance.