The U.S. Securities and Exchange Commission this week brought long-awaited cases against Binance and Coinbase, alleging that the platforms violated U.S. securities laws.
The regulator sued Binance, the world’s largest cryptocurrency exchange, and its CEO Changpeng Zhao on Monday, alleging the exchange artificially inflated its trading volumes, diverted customer funds, failed to restrict U.S. customers from its platform and misled investors about its market surveillance controls.
The SEC also claimed that Binance and Zhao, its billionaire founder and one of the crypto industry’s highest-profile moguls, secretly controlled customers’ assets, allowing them to commingle and divert investor funds “as they please.” The exchange created separate U.S. entities “as part of an elaborate scheme to evade U.S. federal securities laws,” the SEC also alleged, citing a number of practices first reported by Reuters in a series of investigations into the exchange published this year and in 2022.
In a statement, Binance said it had “actively cooperated” with the SEC “from the start,” and intends to defend its platform “vigorously.”
Investors pulled around $1.43 billion from Binance and its U.S. affiliate as of 11 a.m. ET (1500 GMT) on Tuesday, data firm Nansen said.
The SEC also sued Coinbase on Tuesday, accusing the largest U.S. cryptocurrency exchange of operating illegally without having first registered with the agency. In a complaint filed in Manhattan federal court, the SEC said Coinbase has since at least 2019 made billions of dollars by handling cryptocurrency transactions, while evading the disclosure requirements meant to protect investors.
The lawsuit addressed several aspects of Coinbase’s business including Coinbase Prime, which routes orders; Coinbase Wallet, which lets investors access liquidity; and the Coinbase Earn staking service.
Coinbase’s chief legal officer Paul Grewal said in response to the lawsuit that the “SEC’s reliance on an enforcement-only approach” is harming American competitiveness as well as companies like Coinbase.
