SEC v. Binance
The Securities and Exchange Commission (SEC) filed a lawsuit against cryptocurrency exchange Binance and its founder Changpeng Zhao on Monday, June 5. A total of 13 counts are pending against the site. Let’s take a closer look at each of them.
The first charge against Binance is its “cynical disregard” for U.S. laws, which has enriched the exchange’s representatives by billions of dollars, putting investors’ investments at risk. The exchange also incited customers to make transactions on its platforms, both Binance itself and Binance.US.
The platforms offered clearing, brokerage, and exchange services without proper SEC registration. In addition, Binance has been illegally selling cryptocurrency-related securities, as well as running earnings programs such as BNB Vault, Simple Earn, and Staking. And program participants were not adequately informed of the risks posed by such instruments.
The U.S. regulator also has claims of deception about not providing services to U.S. citizens. Binance facilitated the continuation of critical U.S. customers on its platform, although it needed to be restricted. Zhao is also accused of arbitrarily transferring customer funds to various accounts, including instances where assets were reported to himself.
The SEC also has questions about the influence that Binance.US was subjected to by BAM Trading and BAM Management. The regulator accuses Changpeng Zhao of creating a multi-pronged plan to circumvent U.S. laws back in 2018.
The SEC is confident that the Binance founder was aware of the role control and oversight of investors’ investments. The lawsuit highlights Zhao’s 2019 phrase, where he says reliability is the greatest asset for any exchange. SEC believes that BAM Trading and BAM Management specifically claimed control and oversight to prevent speculative trading on Binance.US. At the same time, the reality of these “control and supervision” is questioned by the regulator.
In addition, the platforms have been accused of deliberate non-disclosure of information, causing investors to suffer in terms of security and systematically violating the law.. The charge builds on the “misrepresentation of critical information” that put customers at risk;
These provisions make it appear that only Zhao and his platform were affected. But that’s not exactly true.. This lawsuit specifies which tokens were sold as investment contracts, and therefore as securities. There are 12: BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.
SEC v. Coinbase
Not even a day later, the SEC issued a new lawsuit against a major exchange. This time the regulator has caught Coinbase. The SEC found fewer flaws with it.
The first is that Coinbase acted as a clearing company and exchange, but was not registered with the SEC. Recall that similar claims were made to Binance.
The second is a disclosure of activity that is not in accordance with the provisions of Congress and the SEC. This poses, according to the regulator, a threat to national securities markets and investors.
Also, Coinbase was brokering services not only through the exchange, but also through Coinbase Wallet and Coinbase Prime. Naturally, no one registered in either case.
In addition, the exchange traded cryptocurrencies in the form of securities. Not only Coinbase, but also its parent company CGI fell under the charges.
The exchange is also charged that it made business decisions over many years knowing that its main profit would be commissions from assets with the characteristics of securities, and therefore its activities were subject to regulation.
In addition, the SEC had questions about Coinbase’s staking program. Five cryptocurrencies could be steamed on the exchange, each of which is regarded as an investment contract, and therefore as a security. The steaming program was not registered with the SEC, thus damaging investors’ interests.
Well, of course, it was not without defining a number of cryptocurrencies as securities. In a lawsuit against Coinbase, the SEC cited 13 names. Some of them echo Binance’s list: SOL, ADA, MATIC, FIL, SAND, AXS. Others are different: CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO.
SEC v. Binance.US
On the same day that the lawsuit against Coinbase was filed, another document was released in which the SEC requested that the assets of Binance US be blocked. The main reason for these actions was cited as protecting the platform’s users’ funds, including from embezzlement.
The financial regulator insists that banks should freeze the assets of Binance.US and return the money, including crypto-assets, to the platform’s U.S. customers. In doing so, exchange employees must not modify or conceal information about transactions.
In addition, on June 7, Binance.US official technical support reported that after careful consideration, management has decided to remove certain currency pairs for extended trading. The total number of pairs is 40, among them: 1INCH/USDT, AAVE/USDT, DOT/BTC, ZEC/USDT and others.
Experts clarified that “assets of Binance.US users remain safe and deposits and withdrawals continue to operate as usual.
Binance’s response
The head of the cryptocurrency exchange Binance in response to accusations of the financial regulator urged everyone to remain calm and not to panic, adding that the entire trading floor team “ensures the stability of services.
Also in the blog of Binance appeared extensive treatment of the SEC decision, which suggests that the trading platform is “extremely disappointed” with the actions of the Commission.. The platform denies the allegations, noting that “all user assets on Binance and Binance affiliate platforms, are safe.”. The company also added that it is ready to “vigorously defend itself against any accusations.”
Representatives of the trading floor suggest that the SEC’s actions are aimed not so much at actually protecting customers as at “imposing” jurisdictional rules on a global player in the market. On the other hand, the SEC’s actions “undermine America’s leading role as a global center of financial innovation,” according to Binance.
The lawsuits against Coinbase and Binance have had some effect on the crypto markets, as well as some other consequences.
The impact of the lawsuits on the crypto industry
The reaction of crypto investors to the SEC’s actions was quite predictable – everyone rushed to sell cryptocurrency. Thus, on June 5, the ADA fell 6.77%, SOL fell 8.99%, and MATIC fell 6.39%.. Even bitcoin, which was not mentioned in any of the lawsuits, lost more than 5% of its market value.
Then, on June 6, the turn came to Coinbase stock. On that day they fell in price by 12.09%.. And you could say that’s still not a bad result, as they were down almost 21% at one point.
And as early as June 7, broker Robinhood announced that it may remove Cardano, Solana and Polygon trading from access to its platform. All from the fact that these cryptocurrencies are mentioned in the SEC lawsuits as securities.
The ambiguous impact on the industry if regulatory pressure on Binance worsens will also affect other market players. The SEC is making charges against Coinbase, but their list and nature are not as severe as in the case of Binance. Other major players in the market that are already subject to U.S. financial regulator requirements could potentially benefit from the pressure on Binance, as the latter accounts for a huge share of active customers.
Authorities vs. cryptocurrency
Also notable is the statement of Commission Chairman Gary Gensler himself, who in a recent public speech explicitly stated that “the U.S. no longer needs crypto-assets because the country already has a digital currency.”. He added that the dollar, the euro and the yen “are now digital.. Thus, Gensler actually opposed any cryptocurrency that competes with fiat currency.
U.S. Treasury Secretary Janet Yellen was a little less restrained, saying that the authorities need to increase oversight and regulation of the crypto industry. She supported the SEC’s action, deeming it “appropriate,” but refrained from commenting directly on the lawsuit against Binance.
So it can be argued that government control and the degree of government intervention through various services, commissions and administrative barriers in the cryptocurrency industry is greatly increasing. However, the fact that cryptocurrency is conceptually different from traditional financial solutions and goes against the state monopoly on the issue of money, was argued many years ago by some well-known economists and early coders and crypto-enthusiasts;
So what follows from all this?
Conclusion
The first thing that begs to be said is that U.S. regulators are serious about centralized crypto exchanges in 2023. The SEC lawsuit in early June is not the first case of this kind of activity. Back in February, the Commission began examining the Kraken exchange for compliance with the law.
More recently, in late March, another regulator, the Commodity Futures Trading Commission (CFTC) accused Binance of not complying with the Commodity Exchange Act (CEA).. It is alleged that the management of the exchange knowingly violated U.S. law.
The second point – the lawsuits against Binance and Coinbase highlight the fact that management was aware of the wrongdoing. This will surely be used as an aggravating factor in the court’s consideration.
The third thing to note is the recognition of a number of cryptocurrencies as securities. Most of them use the Proof-of-Stake (PoS) consensus mechanism. At the same time, not all PoS coins are included in the list. So, ADA and SOL tokens are listed first in both documents, but, for example, neither ETH nor AVAX are there.
This material and the information in it does not constitute personal or other investment advice. The opinion of the editorial staff does not necessarily reflect the views of the author, research portals and experts;