SEC Honors 89 Years with Crypto Charges

The Securities and Exchange Commission’s chairman, Gary Gensler, tweeted on June 6 that the Securities Exchange Act of 1934 had made the US regulator officially 89 years old. 

Franklin D. Roosevelt, the 32nd president of the United States, signed the Securities Act of 1933, the first federal securities law, requiring issuers seeking funding from the public to provide full, fair, and true information. The Exchange Act, which formed the SEC to regulate the securities markets and covered intermediaries like exchanges and broker-dealers, was passed a year later.

The majority of individuals throw parties, have supper with friends, or even drink champagne to mark their birthdays. The US crypto exchange Coinbase, which is publicly traded, was accused of running its trading platform as an unregistered national securities exchange, broker, and clearing agency by the SEC, who then declared victory. Additionally, Coinbase was accused by the SEC of not registering the offer and sale of its staking-as-a-service programme for cryptocurrency assets.

In a statement, Gensler said: “We allege that Coinbase combined and marketed exchange, broker-dealer, and clearinghouse operations in violation of the Securities Act while being subject to the Securities Act. These functions exist in different sectors of our securities markets. Investors are allegedly denied important safeguards because of claimed shortcomings at Coinbase. These include rulebooks that guard against manipulation and fraud, accurate disclosure, measures to prevent conflicts of interest, and regular SEC inspection. In addition, as we assert, Coinbase failed to register its staking-as-a-service programme in accordance with the securities laws, depriving investors once more of important disclosure and other protections.”

The SEC had accused Binance, which runs the biggest crypto asset trading platform in the world, and its founder Changpeng Zhao of many violations of securities laws the day before. 

The SEC asserts that although Zhao and Binance had publicly stated that U.S. consumers were not permitted to transact on Binance.com, in reality, Zhao and Binance had surreptitiously overridden their own safeguards to permit high-value U.S. customers to continue trading on the Binance.com platform. The SEC further asserts that although Zhao and Binance publicly said that Binance.US was developed as a distinct, independent trading platform for American investors, Zhao and Binance secretly maintained control over the company’s internal operations.

The SEC further claims that Zhao and Binance have authority over the assets of the platforms’ users, allowing them to combine or divert those funds as they see fit, including to an organization Zhao owned and controlled called Sigma Chain. The SEC’s complaint additionally claims that BAM Trading and BAM Management US Holdings, Inc. (“BAM Management”) misled investors regarding non-existent trading restrictions over the Binance.US platform, while Sigma Chain participated in manipulative trading that artificially increased the platform’s trading volume. Furthermore, the complaint asserts that the defendants hid the fact that they were transferring billions of dollars in investor assets to a separate company, Merit Peak Limited, which is also owned by Zhao, while also concealing their involvement in the practise.

According to a statement from Gurbir S. Grewal, director of the SEC’s Division of Enforcement: “We allege that Zhao and the Binance entities not only knew the rules of the road, but they also deliberately chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits.”

In response, Binance issued a statement expressing its disappointment with the SEC’s decision to file a complaint. It noted that it has actively assisted with the regulator’s inquiries and made a concerted effort to reply to their inquiries and concerns.  

There is absolutely no reason for the Staff’s action given the extensive time the Staff has had to conduct their inquiry, said Binance. “Any allegations that user assets on the Binance.US platform have ever been at risk are simply false,” the company said. All user assets on Binance and platforms operated by Binance affiliates, including Binance.US, are safe and secure, and we will vehemently refute any claims to the contrary.

Binance went on to say that because it is not a U.S. exchange, the SEC’s proceedings are restricted in scope and that it is ready to contest the allegations vigorously.

In a statement, Kristin Smith, CEO of the Blockchain Association, said: “The SEC doesn’t make the law; it just makes  crypto charges. We’re confident the courts will eventually disprove Chair Gensler. Contrary to what Chair Gensler claims, there needs to be regulatory clarity for digital assets, as shown by the fact that two House committee chairs have circulated a thorough regulatory plan. The Digital Asset Market Structure discussion document has taken a step in the right direction, which aims to create appropriate regulation for digital assets and restrain Chair Gensler’s ferocious campaign against American innovation.

It does not appear that any of them will be wishing the SEC happy birthday. SEC literally celebrates 89 years with crypto charges.