The Securities and Exchange Commission has accused Binance, the world’s largest cryptocurrency exchange, of mishandling customer funds and lying to regulators and investors about its business in a sweeping lawsuit filed in federal court on Monday.
The Wall Street regulator said Binance had commingled “billions of dollars” in customer funds and secretly sent them to a separate company called Merit Peak Limited, which is controlled by Binance’s founder, Changpeng Zhao.
The charges included misleading investors about the suitability of its systems to detect and control manipulative trading. Regulators also said that Binance did not take sufficient steps to restrict US investors from accessing Binance̵[ads1]7;s unregulated exchange.
The charges against the largest crypto exchange were the latest moves by US regulators and prosecutors to rein in the Wild West of crypto trading and force major players in the space to comply with US laws.
Binance was already under increasing pressure. The Ministry of Justice is investigating the exchange for money laundering violations. Binance lost its external audit firm when Mazars announced it would no longer do business with crypto companies late last year. The company has also seen its control over the crypto market shrink.
To improve its reputation, Binance has hired a number of new compliance officials, including a former federal prosecutor who now heads the compliance operation.
“We allege that Zhao and the Binance entities not only knew the traffic rules, but also deliberately chose to evade them and put their customers and investors at risk,” said Gurbir S. Grewal, director of the SEC’s enforcement division.
The nation’s top securities regulator filed 13 charges against Binance and Mr. Zhao, better known in the crypto world as “CZ.” The SEC action comes just over a month after the Commodities Futures Trading Commission filed its own civil enforcement action against Binance and Mr. Zhao.
Binance representatives had no immediate comment.
The CFTC seeks to bar Mr. Zhao from doing business that falls under its jurisdiction for life. The agency also wants to permanently banish Binance from the United States.
The actions against Binance and Mr. Zhao come months after the filing of criminal charges against Sam Bankman-Fried, the founder of FTX, which had been a major Binance rival in crypto trading until FTX imploded and filed for bankruptcy last November.
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