1 of 2 | The SEC on Monday charged Binance and its CEO Changpeng Zhao with more than a dozen security violations. File Photo by Miguel A. Lopes/EPA-EFE
June 5 (UPI) -- The U.S. government on Monday charged cryptocurrency trader Binance and its founder, Changpeng Zhao, with a handful of security law violations, saying it established a web of deception with U.S. business practices.
The Securities and Exchange Commission laid out 13 charges against Binance, its affiliates and its founder including operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on its U.S. platform and unregistered offer and sale of securities.
"Among other things, the SEC alleges that, while Zhao and Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform," the commission stated.
Elsewhere, the SEC said that top brass at the company claimed a U.S. division was a separate and independent platform, when in fact Zhao and the parent company continued to operate from "behind the scenes" in the U.S. market.
Gurbir Grewal, the director of the SEC's enforcement division, said Zhao and other entities knew the rules, but continued to break them in a way that put their interests over that of its customers and investors.
"By engaging in multiple unregistered offerings and also failing to register while at the same time combining the functions of exchanges, brokers, dealers, and clearing agencies, the Binance platforms under Zhao's control imposed outsized risks and conflicts of interest on investors," Grewal said.
Among the charges were allegations of the "comingling" of billions of dollars in investor access and delivering them to a third party owned by Zhao.
The company said Monday it was "disappointed" by the charges.
Binance is no stranger to the recent controversies surrounding cryptocurrencies. The company had a non-binding deal in place to acquire FTX, a competing exchange formerly owned by crypto mogul Sam Bankman-Fried.
The deal was pulled after Binance uncovered "mishandled customer funds" and alleged U.S. agency investigations.
Prosecutors say Bankman-Fried directed the payment of at least $40 million in cryptocurrency to one or more Chinese government officials to unfreeze trading accounts tied to Alameda Research.
The disgraced billionaire already had entered not-guilty pleas in charges connected to bank fraud, operating an unlicensed money-transmitting business and making unlawful political contributions.