SEC v. Crypto Exchanges
On June 5th 2023, The Securities and Exchange Commission (SEC) officially lodged a complaint against Binance, its affiliated entities, and Changpeng “CZ” Zhao, the CEO of Binance. According to the SEC, the company has allegedly demonstrated a complete disregard for US securities laws by operating unregistered trading platforms. Furthermore, the SEC accused Binance of conducting multiple offerings of unregistered securities and investment schemes, as well as defrauding investors through misleading statements about controls intended to prevent manipulative trading activities such as wash trading on their platforms.
The allegations put forth by the SEC closely resembles those made by the Commodity Futures Trading Commission (CFTC) in a lawsuit filed in March of 2023. The SEC’s complaint not only echoes these claims but also expands upon them by accusing Binance of inadequate measures to prevent market manipulation. These alleged deficiencies directly contradict Binance’s public statements, wherein they claimed to have implemented sophisticated programs to detect and deter wash trading and other manipulative actions. Notably, the SEC asserts that Sigma Chain, a market maker owned and operated by CZ, engaged in significant wash trading on the platform.
In a surprising turn of events, the SEC lawsuit designates certain prominent cryptocurrencies as securities. The named digital assets include SOL (associated with Solana), ADA (associated with Cardano), MATIC (associated with Polygon), FIL (associated with Filecoin), ATOM (associated with Cosmos), SAND (associated with The Sandbox), MANA (associated with Decentraland), ALGO (associated with Algorand), AXS (associated with Axie Infinity), and COTI (associated with Coti)
Following its complaint against Binance, the Securities and Exchange Commission (SEC) wasted no time turning its attention to Coinbase, filing charges against the company the very next day. This development doesn’t come as a complete surprise, as Coinbase had received a Wells notice from the SEC in late March. A Wells notice serves as a formal notification that the agency intends to file a complaint, giving the recipient an opportunity to present their case and dissuade the SEC from proceeding. However, instead of attempting to persuade the SEC, Coinbase chose to seize the incident as a chance for public relations, aiming to garner support from both the general public and Congress. Their narrative painted the SEC as unfair and accused them of stifling innovation in the United States.
Despite Coinbase’s efforts, the SEC remained unconvinced and proceeded to file a complaint consisting of five claims against the company. These claims revolve around Coinbase operating without registering with the SEC and offering unregistered securities through its cryptocurrency staking program.
Coinbase, true to form, responded defiantly and declared its intent to contest the lawsuit. Given that a significant portion of their business relies on their ability to operate in the United States, they find themselves with little choice but to fight the charges. Coinbase CEO Brian Armstrong took to Twitter, alluding to potential legislative solutions from the US Congress to rectify the situation. It appears he is hopeful that Congress may intervene and alleviate the predicament. While Coinbase has actively lobbied in this regard and cultivated relationships with crypto-friendly advocates in Congress, the outcome remains uncertain for crypto exchanges in the U.S.
Court Documents: SEC v. Binance, SEC v. CoinBase
Upon hearing the news, crypto Twitter decided to fight back by spreading rumors about Gary Gensler, the current Chair of the SEC. Rumors such as, “Gary Gensler sued for market manipulation by placing $2.5 million BTC shorts just 48 hours ago” and “Gary Gensler applied to serve as an advisor for Binance in 2019”. It’s obvious the people are not happy with the recent events. Binance recently sent out an email to its users that they will pause USD fiat deposits and withdrawals on their platform until further notice starting June 13, 2023. The recent events have revealed potential conspiracies and corrupt activities that have caused a stir on crypto Twitter.
Binance’s recent challenging days were further compounded when an individual successfully hijacked the Discord vanity URL associated with BNB Chain, the blockchain project linked to Binance. These scammers created a fraudulent Discord channel and proceeded to disseminate a message stating, “To counter the market’s reaction to baseless SEC allegations, we are conducting a $BNB airdrop on BSC to demonstrate our confidence in our technology and community!” The scammers encouraged members to connect their crypto wallets under the guise of receiving a share of the approximately 100,000 BNB (equivalent to nearly $30 million) that they deceitfully promised to distribute.
Upon being alerted to this fraudulent activity by crypto investigator zachxbt, BNB Chain swiftly responded, taking immediate action within a span of 10 minutes to ban the implicated accounts and remove the misleading posts. They also took measures to secure the server and prevent any further abuse. Unfortunately, less than an hour later, they issued a subsequent tweet notifying users that the URL had been hijacked and was now redirecting to a different server.
BNB Chain emphatically stated, “This is a scam, and connecting your wallet will result in the loss of your funds. Please exercise caution until we can confirm a resolution.”
