The United States Securities and Exchange Commission (SEC) is still looking into the possibility of Binance and its former CEO Changpeng Zhao’s involvement in potential fraud. SEC investigating Binance for fraud could lead to another massive legal battle similar to FTX.
SEC believes the alleged had control over user funds stored on the Binance.US platform. The agency is looking for similar operations and fraudulent activities observed in the FTX case.
Binance has recently faced serious regulatory troubles. The U.S. Department of Justice (DoJ) and the SEC initiated legal action against the leading digital asset exchange back in June. According to a recent Wall Street Journal report the situation is developing, as the federal agency is still looking for evidence. SEC is namely looking to prove Binance’s activities to control assets on the Binance.US platform through a possible backdoor.
SEC Investigating Binance and CZ for Fraud
Notably, the regulator filed a lawsuit against Binance in June. SEC has accused the exchange and its U.S. division of securities law violations. Allegations against the exchange and Zhao include involvement in a complex conspiracy including fraud, lack of disclosure, conflicts of interest, and willful disregard for the law. The agency has also accused Binance.US of neglecting anti money laundering rules, as well as sales of unregistered securities.
Intresetingly, the regulator has accused Binance of diverting customer assets at its discretion and funneling funds to Switzerland-based Sigma Chain under Zhao’s supervision. This could mean that CZ had direct control over customer assets.
The SEC claims that Binance founder Changpeng Zhao allegedly has a backdoor akin to Sam Bankman-Fried’s misappropriation of customer funds via Alameda Research. However, community members argue that Binance did not harm retail investors like FTX did.
Recent developments involve Binance’s former CEO Changpeng Zhao stepping down from his position. The exchange and its CEO also agreed to a $4.3 billion settlement with the U.S. financial regulators and the DoJ.
CZ pleaded guilty to charges of money laundering and breaking sanction laws. Notably, the court has barred Zhao from leaving the U.S. before sentencing, scheduled for February 2024, until further notice. It stated:
“It is ordered that the condition permitting the defendant to return to the UAE pending sentencing is STAYED until such time as this Court resolves the Government’s motion for review.”
However, the Justice Department’s case does not include allegations of Binance misusing customer funds.
Binance Urges Court to Close SEC’s Lawsuit
During a federal court hearing on November 27, Binance.US’s attorneys urged U.S. Magistrate Judge Zia Faruqui to halt the SEC’s fraud investigation. They cited the securities regulator’s lack of evidence regarding asset misuse.
Interestingly, attorney Matthew Laroche highlighted the soaring costs of the SEC lawsuit, pointing to a substantial decline of 90% in Binance.US assets and a 50% reduction in the user base since the SEC sued the company.
Judge Faruqui, overseeing evidentiary disputes, emphasized that Zhao’s recent guilty pleas make it less likely for him to misuse U.S. customer funds. The judge expressed a need to find a resolution, signaling a potential end to the SEC’s investigation. Faruqui stated:
“At some point, I have to make a leap of faith and say enough is enough.”
As the legal battle unfolds, the SEC, Binance, and Zhao face a critical juncture. The judge has set a deadline for both sides to address evidentiary disputes by December 15, marking a pivotal moment in this high-profile legal saga.