The SEC (U.S. Securities and Exchange Commission) is suing Binance and CEO Changpeng Zhao for rule violations.
The Securities and Exchange Commission filedthe world's largest crypto exchange Binance and its co-founder Changpeng Zhao, 13 charges alleging that billions of dollars of user funds were sent to a European company controlled by Zhao.
The US regulator said that Zhao and his exchangeworked to undermine "own control" to allow wealthy US investors and clients to continue trading on Binance's unregulated international exchange.
One of the top executives allegedly told a compliance officer that the company was operating like "a fucking unlicensed securities exchange in the US, bro."
The complaint alleges that Binance created Binance.US as a shield for the main company and Zhao to "detect, detain and eliminate" law enforcement targets and isolate Binance.
Binance has earned over $11 billion in revenue,most of which came from transaction fees, from June 2018 to July 2021, the complaint says. The SEC claims that since its inception, the exchange has been openly and then secretly working to attract clients from the United States under the direction and control of its founder Zhao.
Binance knew that tens of thousands of customers were in the US, but chose to turn a blind eye to this, according to the SEC, despite federal law.
SEC claims Zhao ordered the developmentan evasion plan for wealthy clients, using a VPN to hide their location in the US, and providing eligibility documents to hide their country of origin.
Previously, Binance employees were reported to have encouraged users to bypass the exchange's Know Your Customer systems via a VPN.
Users were told that they could changeyour KYC (know your customer, “know your customer” is a term of banking and exchange regulation for financial institutions and bookmakers, as well as other companies working with private money, which means that they must identify and identify the counterparty before conducting financial transaction) on Binance.com and continue to use it.
SEC Claims Binance and Zhao Violatedcritical provisions of federal security laws, including home action and market manipulation, through Merit Peak Limited and Sigma Chain, which Zhao controlled and owned.
According to the SEC, Merit Peak, a company from the British Virgin Islands, was one of the earliest market makers on the Binance platform in the US. Zhao is the beneficial owner of the company.
The complaint comes after the CFTC made similar allegations against the exchange, alleging that it failed to prevent U.S. customers from accessing it.
"We will respond as soon as we see the complaint," Zhao tweeted.
The defendants demonstrated blatantdisregard for federal law, the SEC alleges. “Based on thirteen allegations, we contend that the Zhao and Binance organizations engaged in an extensive network of deceit, conflicts of interest, non-disclosure, and willful evasion of the law,” SEC Chairman Gary Gensler said in a statement.