The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, its U.S. platform, and CEO Changpeng Zhao for allegedly violating securities laws and offering unregistered securities. The lawsuit alleges that Binance offered unregistered securities in the form of its Binance USD stablecoin and its native token BNB, as well as other products and programs. The SEC also alleged that Binance.US and its legal company, BAM Trading, failed to register as an exchange, broker, or clearing agency. The suit came within weeks of a Reuters report alleging that Binance mixed its corporate revenue with customer funds.
Many in the crypto community drew parallels between the SEC’s case against Binance and its investigation of FTX. However, Binance may face more severe consequences than FTX did. Although Binance has claimed that it is focused on becoming compliant with the newly passed Markets in Crypto-Assets (MiCA) legislation in the European Union, the exchange has faced legal trouble in the United States, the Netherlands, Cyprus, and the United Kingdom. Additionally, reports have surfaced about an ongoing investigation in France based on charges of “aggravated money laundering.”
Industry participants should register digital assets as securities and find a path to list and trade them in a compliant way under current securities law. While some argue that regulators should provide proactive guidance rather than enforcement, others argue that there is a clear regulatory path to registering digital securities that complies with the Securities Exchange Act of 1934.
Binance’s legal trouble has already damaged public trust in the crypto industry, which has been plagued with scandal. The exchange’s market depth declined over 78% for its U.S. entity, while its market share in the U.S. dropped below 1%. Binance may have enough assets to weather the storm and continue non-U.S. operations, but its legal trouble in the U.S. may affect its global ambitions.
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SEC Lawsuit Against Binance May Affect Crypto Exchange’s Global Plans