(Reuters) — Binance, the world’s largest crypto exchange, and its CEO, Changpeng Zhao, operated a “web of fraud” that included artificially inflating its trading volumes and diverting client funds, the US Securities and Exchange Commission alleged on Monday.
The agency sued Binance and Zhao for failing to restrict US customers from its platform and misleading investors about its market surveillance controls, as well as for operating an unregistered securities exchange.
The SEC’s complaint, filed Monday in federal court in Washington, DC, also alleges that Binance and Zhao secretly control client assets, allowing them to commingle and divert client funds, and that Binance created separate U.S. entities “as part of an elaborate scheme to circumvent US federal securities laws.”;
The SEC also alleged that Sigma Chain, a trading company owned and controlled by Mr. Zhao, from at least September 2019 to June 2022, engaged in wash trading that artificially increased the trading volume of cryptoasset securities on the Binance.US platform.
“We allege that Zhao and Binance entities engaged in an extensive web of fraud, conflicts of interest, failure to disclose and calculated evasion of the law,” SEC Chairman Gary Gensler said in a statement.
Binance did not immediately respond to a request for comment on the allegations. In a tweet, Zhao said Binance would provide a response once it has reviewed the SEC’s complaint, saying the exchange’s team “stands by and ensures systems are stable, including withdrawals and deposits.”
The move is the latest in a series of legal troubles for Binance, which was also sued by the US Commodity Futures Trading Commission in March for running what the regulator alleged was an “illegal” exchange and a “sham program,” with Zhao calling the allegations “disappointing.” and an “incomplete recitation of facts”.
Binance is also being investigated by the Justice Department for suspected money laundering and sanctions violations, according to people familiar with the investigation.