On Monday, the Securities and Exchange Commission (SEC) accused Binance, the world’s largest cryptocurrency exchange, of mishandling customers funds and lying to American regulators and investors about its operations. The SEC is pursuing a board legal action that could potentially reshape the distribution of influence and financial resources in the cryptocurrency industry.
The SEC’s legal action against Binance marks the second instance this year where federal regulators have alleged that the exchange violated US investor protection laws. Regulators have consistently viewed Binance, which boasts an average daily trading volume of $65 billion, as a prime target in their efforts to regulate the crypto industry, which has traditionally embraced an anti-government philosophy.
In the 136-page complaint, the S.E.C. said Binance had mixed billions of dollars in customer funds and secretly sent them to a separate company, Merit Peak Limited, which is controlled by Binance’s founder, Changpeng Zhao.
This led the District Court of D.C. to seek authorization to freeze the assets associated with Business Activity Monitoring (BAM) Management US Holdings and BAM Trading Services. These entities serve as the holding and operating companies for Binance.US.
The SEC believes it is important to quickly freeze the assets to protect customers and prevent the defendants from using or moving their assets before a judgement is reached. The SEC argues that the defendants have a history of violating laws, disregarding U.S. regulations, and evading oversight. There are also concerns about financial transfers and the custody of customer assets, including actions taken by defendants who claim they are not under the jurisdiction of the court. This information was mentioned in a filing made by the SEC.
Additional filing of The SEC is asking the court to consider reasons why a temporary order to prevent certain actions should not be issued. They also want the court to order the defendants to bring back assets that belong to BAM customers. Additionally, the SEC seeks an order to stop the defendants from destroying any relevant records. There are several other requests made by the SEC as well.
If the court approves the order, Binance would be given a period of five days to make sure that only Binance.US can access customer funds. Furthermore, within 30 days, all customer assets would be moved to new wallets that could only be accessed by Binance.US.
Impact on the crypto industry?
On Monday, the value of cryptocurrencies and stocks in crypto and blockchain-related companies dropped significantly because the U.S. securities regulator filed a lawsuit against Binance, a cryptocurrency exchange. This event has had another negative impact on the industry.
Many big crypto companies started out in the belief their products did not fall within the SEC’s jurisdiction, and they say the rules are confusing. They are now “in a heap of trouble.”
