Investors are restless after Monday’s news that the largest crypto trading place is being sued by the US stock market watchdog Securities and Exchange Commission (SEC). Since the news, investors have withdrawn nearly 750 million euros from Binance, Reuters news agency reports. The value of bitcoin fell by 5 percent.
Tens of billions of euros worth of crypto coins are traded on Binance every day. The case against the platform is yet another blow to the crypto world after, for example, competitor FTX also went bankrupt last fall.
According to the SEC, Binance has created a “web of deceit” to circumvent US legislation. The SEC came up with a list of thirteen charges. Among other things, Binance is said to have artificially inflated its trading volumes, mishandled customer money and failed to ban US customers from the platform.
In March, Binance was also sued by the other US exchange watchdog CFTC for operating an “illegal trading venue” and a “false compliance program” with the regulations.
A major annoyance of US regulators is that Binance set up a separate US branch (Binance US) with which it said it complies with US regulations. Part of the services that Binance offers are not allowed in America. At the same time, it did not deter American customers from the ‘regular’ Binance. The vast majority of American customers remained active there.
Action chief Zhao
Out research from Reuters turned out to be a deliberate strategy. The news agency concluded in October, after talking to thirty former employees and other people involved and viewing documents and emails, that Supreme Chief Changpeng Zhao approved a plan in 2018 to “isolate” Binance from control by the US authorities in this way. In public, Zhao said the new US stock exchange was a “fully self-contained entity,” while according to Reuters, the company was simply run by him from abroad. An internal message described the company as a “de facto subsidiary”.
Binance also tried to circumvent regulation in the United Kingdom. For example, the CEO approved a plan by a Binance executive to backdate a company document (adjust the date to the past) to prevent a British branch of Binance from being assessed under new funding rules.
The CEO, founder and billionaire Changpeng Zhao, was also sued by the SEC on Monday. It has been clear for some time that he prefers not to be regulated by financial regulators. For example, Binance is active in all kinds of countries where it does not have permission. In April last year regulator De Nederlandsche Bank fined Binance 3.3 million eurosbecause it offers services in the Netherlands without the required registration with the central bank.
Zhao believes that money should be able to move freely between countries and traders. He is not a fan of financial regulators, who, for example, want his company to conduct better customer checks to prevent money laundering. Binance has no headquarters and the holding company is registered in the Cayman Islands. Company employees work from home.
After the demise of competitor FTX last fall, Zhao took flight and suddenly started advocating regulation of crypto companies like his. The FTX exchange was in trouble in November after numerous clients of the trading platform tried to get their money back. They were shocked by the financial ties that appeared to exist between FTX and Bankman-Frieds hedge fund Alameda. It turned out that billions of dollars from FTX clients were funneled into the fund. With the bankruptcy, the price of crypto coins received a major blow. There was briefly talk of Binance taking over FTX, but Zhao soon announced that he did not see any benefit in this.