• The SEC claims that Binance allowed Americans to open accounts and trade on its platform without following proper KYC rules.
• Binance said that it would defend its position “vigorously” against the allegations. Bitcoin and the broader crypto market took a sharp dive on Monday.

On Monday, June 5, the U.S. Securities and Exchange Commission (SEC) sued the world’s largest crypto exchange Binance its Chief Executive Officer Changpeng Zhao over allegations of breaking securities rules, misleading investors and regulators, as well as mishandling customer funds.

In its 136-page complaint filed with the US federal court in Washington, the SEC said that Binance flouted basic KYC rules and allowed Americans to improperly open accounts and trade on its platform. In a statement, SEC Chair Gary Gensler said:

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. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.

The securities regulator has asked Binance to freeze assets as well as appoint a receiver. Furthermore, the SEC also alleged that two Binance-linked tokens – BNB and BUSD stablecoin – were securities, improperly sold to customers.

Interestingly, the SEC also noted that Binance and its US affiliate were actually interlinked with each other and not independent. Thus, it noted that the platform improperly functioned as an exchange, clearing agency, and broker-dealer without registering with the SEC.

“While Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. Investors, Zhao, and Binance secretly controlled the Binance.US platform’s operations behind the scenes,” the SEC said.

Binance Rejects SEC’s Allegations

Binance called the SEC action “disappointing” while adding that the exchange had always tried to engage with the regulator in good faith. The crypto exchange also said that the SEC has been misguided in not providing clarity over rules for digital assets. The exchange noted:

While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously.

The recent lawsuit from the SEC comes three months after the US derivatives watchdog – CFTC – accused Binance of breaking US regulatory rules for trading derivatives. Binance believes that this regulatory action has motivated the SEC. “Because of our size and global name recognition, Binance has found itself an easy target caught in the middle of a U.S. regulatory tug-of-war,” the exchange said.

Also, a large number of crypto industry leaders have come in support of Binance. Tron founder Justin Sun responded to Binance CEO Changpeng Zhao’s tweet adding that he has complete faith in the organization. Cardano founder Charles Hosking called the SEC’s lawsuit an attempt to “implement chokepoint 2.0 in the United States”.

With the latest lawsuit on Binance, the US SEC now brings a total of $115 billion in cryptocurrencies under its purview. Binance’s BNB alone has a market cap of $44 billion, while the SEC also mentions some of the other top altcoins such as Cardano’s ADA, Solana’s SOL, Polygon’s MATIC, Filecoin’s FIL, and Algorand’s ALGO.

Crypto Market Enters Strong Correction

Soon after the news of the SEC lawsuit on Binance broke out, Bitcoin and the broader crypto market entered a steep correction. The bitcoin (BTC) price has tanked by nearly 4 percent and is currently trading at $25,778 with a market cap of just under $500 billion.

Binance’s BNB token has dropped than most falling 9 percent on Monday. Other top ten altcoins named in the SEC lawsuit have also entered a strong correction.