Neither Binance nor Coinbase is like FTX. They have not collapsed outright, and customers appear to be fine. But the two companies face significantly different struggles. The SEC’s claims against Coinbase are only focused on lack of registration and other (for want of a better term) procedural offenses against securities laws. For Binance, things are a little more serious. The SEC alleges that Binance actively misled U.S. regulators and American investors about its operations, transferring customer assets to other holding companies and artificially inflating market volume.
“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” Gensler said in a statement about the complaint. “As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied.”
I’ve referred to Binance as a singular entity throughout this article for clarity’s sake, but that isn’t strictly true. As the SEC detailed in its complaint, it actually consists of multiple holding companies that directly or indirectly answer to founder Changpeng Zhao. He allegedly opted for the complex structure to maximally shield Binance.com, the operation’s central hub, from regulation. You do not have to take the SEC’s word for this. It quoted Binance’s chief compliance officer as saying in 2020 that “because we do not want [Binance.com] to be regulated ever, we created local entities to be registered with the regulators, and ringfence accordingly.”
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