According to Bloomberg, the U.S. Securities and Exchange Commission (SEC) has imposed sanctions on Binance, its CEO Changpeng Zhao (CZ), and two other subsidiaries, BAM Trading Services ("BAM Trading"）、BAM Management US Holdings Inc.（"BAM Management"), accusing the defendants of violating U.S. securities exchange rules. Odialy SpecialThe 136-page indictmentKey excerpts:
1. The SEC believes the defendants flouted the federal securities laws and made themselves billions of dollars rich.
2. The defendant asked American users to buy, sell and trade encrypted asset securities on the unregistered trading platform Binance.com and Binance US. Binance US does not exist at all, and BAM Trading and BAM Management claim to monitor Binance.US is just a guise. For quite a long time after the launch of Binance.US, Binance held and controlled BAM Tradings offshore data, and BAM Tradings employees were unable to obtain certain real-time data on the Binance.US platform without Zhaos personal approval. transaction data. (Note: Binance US is jointly established by Binance and BAM Trading).
3. Binance and BAM Trading illegally provided three basic securities market functions—exchange, broker-dealer, and clearing house—without registering with the SEC. Moreover, they illegally engaged in the issuance and sale of unregistered crypto asset securities, including BNB, BUSD, BNB Vault, Simple Earn, and Staking services. Additionally, BAM Trading and BAM Management raised $200 million by falsely claiming control over Binance.US.
4. In order to evade the registration requirements of the federal securities laws, in 2018, Binance hired several consultants to provide US legal risk consulting. The consultant proposed a “Tai Chi” plan to ease tensions by creating a U.S. entity (later Binance.US) that would be targeted by regulatory enforcement, “relieving Binance of legacy and future responsibilities.” In the plan, Binance is not only a technology provider, but will also provide liquidity and market access to the platform. This move not only retains the U.S. market, but also obtains license fees and service fees paid by the U.S. entity; in addition, it can also provide legal currency deposit and withdrawal functions through the OTC service of the entity, and Binance can obtain legal currency at any time without the need to establish a separate bank account ; more importantly, Binance personnel can continue to operate from non-US locations to avoid law enforcement risks (seizure of assets).
5. The first step of the plan is to create BAM Management and BAM Trading, claiming to operate independently, but in fact CZ and Binance remotely command BAM Trading’s business operations in the United States; the second step is to declare that the Binance.com platform does not serve Americans. But in fact, CZ instructed Binance staff to assist certain high-net-worth American customers to evade controls—change IP addresses through VPNs or conduct KYC by setting up offshore companies; moreover, CZ actively solicited American investors through his social media and other Internet posts in Trading on the Binance platform to retain US investors.
6. Defendants put at risk billions of dollars of US investor funds at the mercy of Binance and CZ while providing securities related services to US clients. For example, billions of dollars in customer funds on the Binance platform were transferred to accounts held by a CZ-controlled entity named Merit Peak Limited, which were later transferred to third-party accounts.
7. BAM Trading and BAM Management failed to monitor and control measures to prevent manipulative trading. In fact, wash trading (wash trading, that is, false transactions) is very common on Binance.US. From September 2019 to June 2022, Sigma Chain, a trading company controlled by CZ, was heavily involved in false transactions. Binance.US US transaction volumes are also artificially inflated.
8. The SEC issued a final judgment: (a) permanently prohibiting the defendant from further violations of the federal securities laws; (b) ordering the defendant to surrender his illegal gains and prepaid interest; (c) imposing civil penalties on the defendant, and for the benefit of investors, order Take such equitable relief as is appropriate or necessary; (d) permanently prohibit the respondent, and any entity controlled by it, from, directly or indirectly, using the means or instruments of interstate commerce to engage in the issuance, purchase, offering, or sale of securities (including cryptoasset securities), and otherwise Financial Services.
9. The Binance network is made up of multiple entities and is not transparent: CZ is the CEO of Binance and the chairman of the board of directors of BAM Trading and BAM Management (at least until March 2022); BAM Trading is the operating company of Binance.US with 43 Money transmitter license in US jurisdictions, including this one; BAM Management is the parent company of BAM Trading, which is wholly owned by BAM Management Company Limited in the Cayman Islands - which in turn is owned by the British Virgin Islands CPZ Holdings Limited is wholly owned, while CZ owns 81% of CPZ,
10. Sigma Chain is a cryptocurrency asset trading company registered in Switzerland, CZ is its controller, and several Binance employees are in charge of the business. Among them, the background manager of Binance is also the president of Sigma Chain, and she also has the signing authority of the BAM Trading bank account. Sigma Chain is an active trader on both Binance platforms and refers to itself as the Binance.com Primary Market Maker. After the launch of the Binance.US platform, Zhao directed Sigma Chain to be one of its first market makers. In addition, Sigma Chain has been one of the trading parties on the Binance.US platform since the Binance.US platform began to provide OTC and OCBS services.
11.Merit Peak Limited（"Merit Peak"image description
(Relationship chart of CZ and affiliated companies)
12. Before 2021, Binance entity accounts sent billions of dollars in customer assets to US bank accounts in the name of Merit Peak, and Merit Peak transferred all these funds to Trust Company A, which appeared to be stable with Binance Coin (BUSD) issuance. Using Merit Peak as an intermediary to transfer funds from platform clients to purchase BUSD presents investors with undisclosed counterparty risk.
13. Merit Peak and Sigma Chain accounts were used to transfer tens of billions of dollars between BAM Trading, Binance, and related entities. For example, in 2021, at least $145 million was transferred from BAM Trading to a Sigma Chain account, and another $45 million was transferred from BAM Tradings trust company B account to a Sigma Chain account. From this account, Sigma Chain purchased a yacht for $11 million.
14. Between October 2022 and January 2023, CZ personally received $62.5 million from a Binance bank account.
15. From June 2018 to July 2021, Binance earned at least $11.6 billion in revenue, most of it from transaction fees.
16. CZ and Binance regularly track customer activity on the Binance.com platform, so they know that US customers make up a significant portion of their business. In an internal report in August 2019, Binance estimated that its platform had more than 1.47 million customers in the US; as of 2019, Binance had more than 3,500 US-based principal traders (VIPs). According to an internal Binance report in March 2020, the Binance.com platform still has about 159 US VIP customers, accounting for nearly 70% of all VIP trading volume worldwide; two years after the launch of the Binance.US platform (May 2021) , US VIP customers still account for more than 63% of VIP customer trading volume on the Binance.com platform. From January to September 2021, over 47,000 US investors traded BNB on the Binance.com platform.
17. Before the launch of the Binance.US platform, the CEO of BAM suggested not to list BNB transactions on Binance.US, but CZ strongly demanded to go online. They knew that this might lead to SEC’s enforcement action, but believed that the profit opportunities outweighed the risks— —They quantified the legal risk of BNB listing as: 20% increase in BNB price VS $10 million in legal fees and fines.
18. CZ and Binance control the bank accounts of BAM Trading. Prior to December 2020, BAM Trading personnel had no control over the companys bank accounts, including the accounts used by customers to deposit funds into the Binance.US platform, and only CZ or Binance back office managers had signatory authority over these accounts. Later, in order to avoid regulatory scrutiny, the financial director of BAM Trading was set as one of the signatories of the client account, because the client account is an account that regulators focus on. As of May 2023, CZ still has signatory authority over BAM Tradings accounts holding client funds on the Binance.US platform.
19. CZ controls the day-to-day business expenditure and decision-making of BAM Trading. Before January 30, 2020, BAM Trading requires CZ and Binance approval for all expenditures over $30,000, payments including rent, franchise taxes, legal fees, Amazon Web Services (“AWS”) fees, and even $11,000 for a Binance-branded hooded sweatshirt. Binances Shanghai-based finance team manages BAM Tradings payments, including transferring funds between bank accounts and depositing cash when BAM trades; when BAM Trading is running low on funds, Merit Peak injects capital.
20. Without BAM Tradings knowledge, the Binance finance team was able to transfer large amounts of funds. In June 2020, Trust B alerted the BAM CEO that BAM Tradings internal transfers had increased from approximately $10 million per day to $1.5 billion, but the CEO was not aware of these transfers and could not verify them because she Without account permissions, you can only ask Binance for verification.
