SEC Opens Fire On Binance.US

The SEC has filed a slew of charges against exchange giant Binance and its founder, Changpeng Zhao. The news sent the crypto markets into a tailspin, with BTC crashing $1,500 on Monday.

In its case against the exchange, the SEC adds another 10 crypto assets to the list that it deems to be securities, bringing the total to over 60. Like the lawsuit against Coinbase, this looks like the SEC going for the jugular—but is it as big a deal as it first seems?

What Are The Charges?

The SEC filed a total of 13 charges against Binance Holdings Ltd., its US-based affiliate BAM Trading Services Inc, and its founder, Changpeng Zhao. The charges include operating unregistered exchanges, broker-dealers, and clearing agencies. Moreover, the SEC accuses Binance and its affiliate of misrepresenting trading controls and oversight on the Binance.US platform, as well as engaging in the unregistered offer and sale of securities.

Among the SEC's accusations is that although Binance and Zhao publicly stated that customers from the United States were prohibited from accessing Binance.com, they allegedly allowed US customers to continue to use the platform. The regulator additionally claims that Binance and Zhao covertly controlled Binance.US.

In a twist reminiscent of the FTX/Alameda debacle, the SEC claims Binance has been commingling billions of dollars in customer funds and secretly diverting them to an entity owned by Changpeng Zhao. SEC Chair Gary Gensler asserts that Binance and Zhao orchestrated an elaborate scheme involving deception, conflicts of interest, inadequate disclosure, and calculated evasion of the law—just like Sam Bankman-Fried did.

Bad Faith

According to Binance's response, the SEC had been dealing with the exchange in apparently good faith, but abandoned that process. The pattern is the same as other crypto organizations have experienced, most notably Coinbase. Having worked closely with the exchange for years, the SEC broke off their dialog and instead filed a lawsuit.

In the charges, the SEC includes a further 10 digital assets that it considers securities, bringing the total to 61. These include Binance's native BNB token, Binance USD (effectively a white-labelled version of USDP), Solana (SOL), Cardano (ADA), Polygon (MATIC) and several others.

Binance makes it clear what they think the subtext of the SEC's actions is: A regulatory land-grab in which they abandon productive collaboration and seek to preemptively define crypto assets as securities, under their purview, before other regulators can lay claim to the space.

What's Really Going On?

The SEC's action is in line with its "regulation by enforcement" approach, which means crypto organizations are uncertain of the rules they need to keep until they are sued. Targeting Binance is just another attack in Operation Choke Point 2.0, albeit a big one.

Despite the shock and awe tactics, though, there's limited damage the SEC alone can do to Binance. (Of more concern may be possible criminal charges.)

#Binance #SEC suit:
1) All SEC enforcement actions are civil, not criminal. They sue to get fines, and a judge can order the defendant "stop breaking the law." That's it. No jail, no SWAT raids, nothing like that. IOW, it's a shakedown and politicized suppression action, part… pic.twitter.com/30ScMO4dq0
— Timothy Peterson, CFA CAIA (@nsquaredcrypto) June 5, 2023

Charles Hoskinson, founder of Cardano, is clear that he believes this to be a bigger play by the US authorities to stamp out crypto and consolidate financial control in the hands of the biggest banks—culminating in the rollout of a CBDC.

With respect to Binance, I'm reading through the SEC complaint. It's over 130 pages, but seems like the next in a series of steps to implement chokepoint 2.0 in the United States. The end goal is a agenda based CBDC partnered with a handful of massive banks and end-to-end control…
— Charles Hoskinson (@IOHK_Charles) June 5, 2023

While warning of near-apocalyptic consequences, Hoskinson sounds an optimistic note about the eventual outcome of these attacks on the crypto industry.

Honestly, what is happening isn't anything new. It's always the same fight between freedom and authoritarianism just with different players, technology, and words. It does seem like this event is a perfect opportunity for the entire industry to set aside it's fragmented nature and unite for a common sense set of rules and guidelines that can prevent the United States from slipping into a distopia that would make 1984 look like a vacation. I'll have more to say later, but will close with we are going to be fine. Everything's alright and the future is bright for the industry.

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