SEC dropped a bombshell lawsuit against Binance and CZ this morning. Compared to the previous CFTC lawsuit, the allegations are even more serious. It’s a 136 pages complaint but here are a few highlights:
Binance.US is practically controlled by CZ and the Binance.US executives were frustrated. While Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes. BAM CEO B testified to SEC staff that the “level of … connection” between Binance and BAM Trading was a “problem” and that he had concluded that BAM Trading “need[ed] to migrate the technology to full [BAM Trading] control.” That transfer of control had not happened at least as of BAM CEO B’s resignation in August 2021
Market makers on Binance.US are controlled by CZ. Sigma Chain is a crypto asset trading firm incorporated in Switzerland. Zhao is Sigma Chain’s beneficial owner, and several Binance employees conducted its operations. Among others, Binance’s back office manager (“Binance Back Office Manager”) was Sigma Chain’s President at the same time she also had signatory authority over BAM Trading’s bank accounts. Sigma Chain was an active trader on both Binance Platforms, and described itself as “the main market maker for Binance.com.” Upon the Binance.US Platform’s launch, Zhao directed that Sigma Chain be one of its first market makers. Further, since the Binance.US Platform began offering over-the-counter (“OTC”) trading and its Convert Trading and One Click Buy Sell (“OCBS”) Services to customers, Sigma Chain has served as one of the counterparties to Binance.US Platform customers, including, at times, serving as the only counterparty.
Commingling of funds. Lacking regulatory oversight, Defendants were free to and did transfer investors’ crypto and fiat assets as Defendants pleased, at times commingling and diverting them in ways that properly registered brokers, dealers, exchanges and clearing agencies would not have been able to do (Sigma Chain also allegedly bought a $11M yacht with the commingled funds.)
Wash trading activities. Most notably, from at least September 2019 until June 2022, Sigma Chain AG (“Sigma Chain”), a trading firm owned and controlled by Zhao, engaged in wash trading that artificially inflated the trading volume of crypto asset securities on the Binance.US Platform.
I am not surprised by the lawsuits at all. Dirty Bubble Media has been reporting about the shenanigans of Binance for a while. Binance looks super sketchy and they never have good responses. Last time, when the CFTC lawsuit was filed, their response was “oh their accusations might be true but Binance is not under jurisdiction of the USA.” Now, the lawsuit is mostly about Binance.US. They probably will come up with some responses that are absurd. My questions are why it takes so long for regulators to do anything, why Binance.us is still operating and why Tether is still printing money like there’s no tomorrow. When will these criminal activities be stopped? Blockchains and Defi will only be credible when criminal players like Binance and Tether are weeded out of the system.
