Binance Lawsuit Case – A recent legal action initiated by the United States Securities and Exchange Commission (SEC) has shed light on various alarming aspects pertaining to Binance, the largest cryptocurrency exchange globally, as well as its CEO Changpeng Zhao. The lawsuit, filed by the SEC, uncovers a range of issues, spanning from Binance’s evasion of US regulations to internal discussions concerning Binance.US.
In a bold move, the SEC has taken legal action against both Binance and Changpeng Zhao, popularly known as CZ. The lawsuit, filed on Monday, accuses them of demonstrating a complete disregard for federal securities laws. The charges against them include the operation of an unregistered exchange, among others.
[w]e operations as an unlicensed securities exchange in the USA
According to the Securities and Exchange Commission (SEC), it has been revealed that Zhao and Binance were fully aware of their operation of the Binance.com platform, which was in direct violation of multiple US laws.
The SEC highlighted a statement made by Binance’s Chief Compliance Officer (CCO) in December 2018, where they candidly admitted, “we are operating as an unlicensed securities exchange in the USA, bro.” This statement emphasizes the SEC’s claim.
In order to launch the Binance.US platform, Zhao and Binance oversaw the establishment of two US corporate entities: BAM Management and BAM Trading. The SEC asserts that these entities were created as part of an intricate scheme to circumvent US laws. Binance portrayed the Binance.US platform as an independent entity, stating that US customers were not permitted to use the Binance.com platform.
However, the SEC alleges that Zhao and Binance maintained significant involvement and control over the US entity despite these claims.
The content of the Binance lawsuit – An Elaborate Strategy – the Tai Chi Plan
According to the filed complaint, Zhao and Binance enlisted the help of several advisors to navigate their legal obligations in the US.
In 2018, a Binance consultant proposed a strategic plan to Zhao and Binance, suggesting the establishment of a US-based entity referred to as the “Tai Chi entity.” This information was also covered by Forbes in 2020, resulting in Binance taking legal action against the publication for defamation.
The SEC revealed that the consultant recommended the Tai Chi entity release a comprehensive evaluation framework based on the Howey Test, a landmark US Supreme Court case that determines whether an investment qualifies as a security.
The SEC further stated that Binance “implemented a significant portion of the Tai Chi Plan.” In addition to creating BAM Trading and the Binance.US Platform, Zhao and Binance allegedly devised policies and controls to give the impression that the Binance.com Platform was blocking US customers, while secretly undermining those controls.
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SEC’s Classification: Certain Cryptocurrencies Identified as Securities
The complaint filed by the SEC identified several cryptocurrencies, including Solana, Cardano, and Polygon, as securities.
The SEC stated that since the launch of the Binance Platforms, the defendants have made these crypto assets available for trading, presenting them as investment contracts and, therefore, securities. The mentioned crypto asset securities include BNB, BUSD, and various units with trading symbols such as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.
According to the SEC, each of these assets was offered and sold as an investment contract. Binance has expressed its intention to vigorously defend itself “to the full extent of the law.”
In response to the SEC’s action, Binance published a blog post on Monday, stating that the Commission’s approach to regulation involves enforcement and litigation, lacking the thoughtful and nuanced approach required for this dynamic and complex technology.