On June 5, 2023, the SEC filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, accusing it of operating as an unlicensed securities exchange within the United States. The SEC alleges that Binance, through its CEO Changpeng Zhao (known as CZ), engaged in a variety of illegal activities, such as deceptive practices, evasion of regulations, and the misuse of customer funds. Notably, the SEC claims that Zhao and Binance commingled billions of dollars worth of customer assets and even diverted some to an entity controlled by Zhao.
The SEC’s complaint suggests that Binance was fully aware of its unlawful operations within the US, as stated by a conversation between two Binance compliance officers in December 2018. Binance has maintained that it is not subject to U.S. regulations as it doesn’t have a physical headquarters in America, a stance that the SEC rejects, viewing it as an attempt to avoid regulation.
Coincidentally, this legal action comes in the wake of increased scrutiny of crypto platforms following the collapse of FTX, another cryptocurrency exchange that has been labeled as one of the biggest financial frauds in U.S. history.
On June 6, 2023, the SEC charged Coinbase for operating as an unregistered securities exchange, broker, and clearing agency. According to the SEC, since 2019, Coinbase has made billions of dollars unlawfully by facilitating the buying and selling of crypto asset securities without having registered any of those functions with the SEC. The SEC also alleges that Coinbase’s parent company, Coinbase Global Inc. (CGI), is also liable for certain of Coinbase’s violations.
The SEC has also raised concerns about Coinbase’s staking-as-a-service program, which it alleges was offered without the necessary registration. According to SEC Chair Gary Gensler, Coinbase’s alleged failures deprive investors of critical protections including safeguards against conflicts of interest, proper disclosure, and routine inspection by the SEC.
Both Binance and Coinbase have denied the charges and maintain that their operations are lawful. Binance has stated that it believes the SEC’s allegations are “unjustified” and considers itself an “easy target” due to its size and global recognition. Coinbase’s response to the charges has not yet been found.
The legal actions against these two major crypto platforms signify an intensified regulatory focus on the cryptocurrency industry. However, as of now, the full implications of these legal proceedings remain uncertain.
It is important to note that while I’ve found substantial information on the SEC’s charges against Binance and Coinbase, there are some details left unexplored due to the time constraint. Particularly, the precise details of Coinbase’s response to the SEC’s charges, as well as the broader impacts of these legal actions on the cryptocurrency industry, remain to be fully investigated.