The Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, a cryptocurrency trading platform, for allegedly operating an illegal exchange in the United States. The lawsuit claims that Binance and its founder, Changpeng Zhao, misused customer funds by diverting them to a trading entity controlled by Zhao called Sigma Chain. Binance also allegedly moved billions of dollars to another company controlled by Zhao called Merit Peak. The SEC alleges that Sigma Chain engaged in manipulative trading that artificially inflated Binance's trading volume.
Binance allegedly publicly claimed that the company was created as a separate, independent trading platform for US investors. However, the SEC alleges that the company and its founder secretly controlled Binance.US platform's operations. The SEC cited a quote from Binance's chief commercial officer, which said, "We are operating as a fking unlicensed securities exchange in the USA bro."
This is not the first time that Binance has been in trouble with regulators. In March, US regulators alleged that Binance and Zhao evaded Commodity Futures Trading Commission rules. The SEC has reportedly been conducting an investigation into whether Binance illegally sold digital coins when the company was starting out in 2017.
Several crypto firms have been hit with civil lawsuits in recent months as US regulators continue to crackdown on the industry. The SEC charged cryptocurrency trading platform Beaxy earlier this year for failing to register as a securities exchange. The SEC alleged that the company's founder misappropriated customer money, and Beaxy ultimately shut down. Kraken, another crypto exchange, settled with the SEC last month after being accused of not registering under securities laws.
Binance is also being investigated by the Justice Department over its program to detect money laundering. The company's chief strategy officer told the Wall Street Journal that the company expects to pay monetary penalties to settle the investigations into the company.