Binance and CEO sued by SEC for mishandling funds.

The SEC Files Lawsuit Against Binance and CEO for Mishandling Customer Funds

The Securities and Exchange Commission has filed a lawsuit against the world’s largest cryptocurrency exchange and its CEO.

The action was revealed in a federal court filing on Monday. The SEC is accusing Binance and its CEO, Changpeng “CZ” Zhao, of lying to federal regulators as well as mishandling customer funds.

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The SEC said that Binance had been secretly diverting customer funds to another trading entity controlled by Zhao, Sigma Chain, which then engaged in fraudulent trading, which made Binance’s volume appear bigger than it was. The complaint accuses Binance and Zhao of “blatant disregard” for federal securities law.

“In doing so, Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk,” the SEC alleged in the lawsuit.

Zhao himself tweeted about the lawsuit soon after the news broke. He said that Binance has still yet to read the lawsuit in question.

“Our team is all standing by, ensuring systems are stable, including withdrawals, and deposits,” Zhao said. “We will issue a response once we see the complaint. Haven’t seen it yet. Media gets the info before we do.”

The lawsuit adds to the regulatory troubles facing the cryptocurrency giant.

In March, the Commodity Futures Trading Commission announced it was suing Binance and Zhao for allegedly breaking U.S. regulatory law, labeling the firm’s compliance efforts a “sham.” The regulators charged that Binance, Zhao, and other entities operate the exchange in violation of CFTC regulations and the Commodity Exchange Act.

The complaint also accuses Binance’s former chief compliance officer, Samuel Lim, of aiding and abetting the platform’s alleged violations.

The CFTC argues that Zhao and Lim worked in tandem to lure U.S.-based trading customers, even though Binance doesn’t have permission to operate domestically. Regulators said in a news release at the time that Binance operates the exchange through numerous corporate entities and through “an intentionally opaque common enterprise.”

The CFTC added that the defendants engaged in “a calculated strategy of regulatory arbitrage to their commercial benefit.”

Bitcoin and Ethereum Tumble in Response to the News

News about the world’s largest crypto exchange coming under further scrutiny caused bitcoin, the flagship cryptocurrency, to tumble on Monday. Bitcoin lost about 3% of its total value in the minutes after the news broke, falling to about $26,400. Ethereum dropped about 2.9%.

Binance coin, a digital token developed by Binance, began plunging in response to the news. The cryptocurrency was down more than 5% in the minutes after the SEC lawsuit was revealed and accelerated to about 8% as more investors learned about the lawsuit.

• Binance and its CEO are being sued by the SEC for mishandling customer funds and lying to federal regulators.
• The cryptocurrency giant is also facing regulatory troubles from the CFTC for allegedly breaking U.S. regulatory law.
• Bitcoin, Ethereum, and Binance coin all tumbled in response to the news.

Stay tuned for updates on this developing story.

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