The Securities and Exchange Commission on Monday sued Binance, the world’s largest cryptocurrency exchange, alleging the overseas company operated an illegal trading platform in the U.S. and misused customers’ funds, the Wall Street Journal reported. The SEC lawsuit also named Changpeng Zhao, Binance’s founder and controlling shareholder, as a defendant. The SEC said that Binance and Zhao misused customers’ funds and diverted them to a trading entity that Zhao controlled. That trading firm, Sigma Chain, engaged in manipulative trading that made Binance’s volume appear larger than it actually was, the SEC said. Binance also concealed that it commingled billions of dollars in customer assets and sent them to a third-party, Merit Peak, which was owned by Zhao, the SEC alleged. The Wall Street Journal reported last year that the SEC was examining the relationship between Binance.US — the U.S. arm created in 2019 — and Sigma Chain and Merit Peak. The SEC filed the case in federal court in the District of Columbia. Binance engaged in “blatant disregard of the federal securities laws and the investor and market protections these laws provide,” the agency wrote in its court complaint. U.S. regulators have been circling Binance for years, with the SEC and the Justice Department sending subpoenas to its U.S. arm in late 2020, according to documents viewed by the Journal. Officials have ramped up enforcement efforts over the past year, after the collapse of numerous crypto companies including one of Binance’s biggest rivals, FTX.
