The Securities and Exchange Commission filed 13 charges against Binance, the world's largest cryptocurrency exchange, and co-founder Changpeng Zhao, for alleged securities violations and operating illegally in the United States. Bitcoin dove lower to drag down cryptocurrency prices following the news Monday.
The SEC claims Binance operated illegally in the United States through its affiliate, BinanceUS, despite publicly stating that it was a separate, independent trading platform for American investors. The lawsuit alleges that Zhao and Binance secretly controlled the platform's operations behind the scenes.
According to the filing, Binance generated at least $11.6 billion in revenue since July 2017 while operating as an unregistered exchange and broker in the U.S.
The SEC argues that Binance and Zhao misused customer funds and commingled them with personal and company holdings. The regulator alleges that Zhao and Binance also transferred funds to another Zhao-controlled entity called Sigma Chain, which was used to manipulate trading and artificially inflate the platform's trading volume.
"Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law," SEC Chair Gary Gensler wrote in the release. "... They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms."
It's not the cryptocurrency exchange's first run-in with U.S. regulators.
In late March, the Commodities Futures Trading Commission sued Binance and Zhao for trading and derivatives rules violations. That lawsuit followed a scathing March 1 letter from Senators Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.) and Roger Marshall (R-Kan.), accusing Binance of criminal activity. The representatives placed the company under investigation for potential sanctions evasion, money laundering and unlicensed money transmission.
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Bitcoin Price Dives On Binance News
Cryptocurrency prices tumbled further Monday following the lawsuit news. Bitcoin price dove 5.9% over the past 24 hours, to near $25,600 from its Sunday-evening high of $27,455. Ethereum hovered around $1,806 on Monday after falling as low as $1,787 after the SEC announcement. Its Sunday peak was $1,912.
Binance's publicly-traded rival Coinbase tumbled 9% Monday as cryptocurrency prices retreated.
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