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Bitcoin At Its Lowest In 3 Months As US Sues Binance And CEO Changpeng Zhao

The US Securities and Exchange Commission (SEC) complaint, filed in a federal court in Washington DC, lists a total of 13 charges against Binance, Zhao and the operator of its purportedly independent US exchange

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US regulators have filed a lawsuit against Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao, accusing them of operating a "web of deception" and engaging in fraudulent activities. 

The US Securities and Exchange Commission (SEC) complaint, filed in a federal court in Washington DC, lists a total of 13 charges against Binance, Zhao and the operator of its purportedly independent US exchange.

According to the SEC, Binance artificially inflated its trading volumes, misappropriated customer funds, failed to restrict US customers from its platform, and provided misleading information to investors about its market surveillance controls. The complaint also alleges that Binance and Zhao secretly controlled customers' assets, allowing them to commingle and divert investor funds at their discretion.

The SEC further claims that Binance created separate entities in the United States as part of an elaborate scheme to evade federal securities laws. These practices were first reported by Reuters in a series of investigations conducted in 2022 and this year.

One of the allegations brought forth by the SEC involves a trading firm owned by Zhao called Sigma Chain. The SEC claims that Sigma Chain engaged in wash trading, artificially inflating the trading volume of crypto asset securities on the Binance.US platform until June 2022. The SEC also highlighted that Sigma Chain spent USD 11 million from an account on a yacht.

SEC Chair Gary Gensler stated, "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." In response to the lawsuit, Binance released a blog post stating their intention to vigorously defend their platform, asserting that the SEC's actions are limited in reach since Binance is not a US exchange.

Binance.US, which is ultimately controlled by Zhao, also expressed its disagreement with the SEC's allegations in a tweet, deeming the lawsuit unjustified. The news of the lawsuit had a significant impact on the cryptocurrency market, with Bitcoin, the largest cryptocurrency, dropping as much as 6 per cent to its lowest level in nearly three months. Binance's native cryptocurrency, BNB, also experienced a decline of over 5 per cent.

Industry analysts speculate that the SEC's allegations could severely impact Binance, as the lawsuit's repercussions are likely to reverberate throughout the crypto industry. Binance currently dominates crypto trading, processing approximately USD 65 billion in trades daily.

This lawsuit from the SEC adds to Binance's growing list of legal troubles. In March, the exchange was sued by the US Commodity Futures Trading Commission (CFTC) for operating an allegedly "illegal" exchange and having a "sham" compliance program. Binance is also under investigation by the US Department of Justice for suspected money laundering and sanctions violations.

Binance's holding company is based in the Cayman Islands, and the exchange has not disclosed the location of its main exchange. The SEC alleges that Zhao devised a plan to evade US laws and directed Binance.US despite the entity claiming to operate independently. The SEC further claims that billions of dollars in Binance customer funds were commingled with corporate funds, a breach of US laws.

Earlier reports by Reuters revealed that Binance had mixed customer deposits with company funds in a US bank account belonging to Merit Peak. Binance, however, denied these allegations, stating that the funds sent to the account were used to purchase Binance's dollar-linked crypto token and not considered as customer deposits.

The lawsuit by the SEC against Binance and Zhao raises concerns about the future of the exchange and the broader cryptocurrency industry, as regulators intensify their scrutiny of the market.