Crypto Market Tumbles After SEC Lawsuit Against Binance

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  • The crypto market saw $69 billion wiped off it following the SEC’s lawsuit against Binance
  • The agency wants to ban Binance and CEO Changpeng Zhao following several alleged transgressions
  • Binance had argued that the SEC walked out of settlement talks

$69 billion was wiped off the crypto market yesterday following the Securities and Exchange Commission (SEC) suing Binance, Binance.US, and Changpeng Zhao for various financial crimes relating to its US operation. The SEC charged the entities with a litany of crimes ranging from illegal sales of securities to evading KYC/AML reporting requirements and seeks a permanent ban on Binance and Zhao serving US customers in any related capacity. Binance responded that it will fight the charges and accused the SEC of walking out of settlement talks, saying the SEC was focused on “making headlines”.

SEC Lays Down Its Version of the Law

The potential of SEC action against Binance has been in the wind for months, if not years, given the zeal with which chair Gary Gensler has attacked the crypto space. It was inevitable that Binance would face charges eventually given that it is the biggest exchange in the crypto space, and yesterday they arrived. The charges include:

  • Operating an illegal exchange due to a lack of registration
  • Wilful avoidance of KYC/AML requirements
  • Taking part in “unregistered offers and sales” of crypto asset securities
  • Commingling and diverting customer funds to entities controlled by Zhao

The SEC is seeking permanent bans for Binance, Binance.US and Zhao as well as a hefty fine and disgorgement, adding to similar demands made by the Commodity Futures Trading Commission (CFTC) in March. Bitcoin and other cryptocurrencies fell as a result of the news, with BNB unsurprisingly one of the worst affected coins.

Gensler said when he first took office that he would focus on litigating against crypto exchanges, while the SEC said in February that it would focus on platforms which it thought were acting as illegal ‘broker-dealers’, of which it has accused Binance of being.

Binance Hits Back

Binance, which also must have expected that such charges were imminent, released a statement hours after they were published in which it said it would fight the charges, blaming the SEC for walking out on talks. The exchange said that it was “disappointed” and “disheartened” by the SEC’s actions, chiefly because it had been trying to work with the agency over a settlement:

From the start, we have actively cooperated with the SEC’s investigations and have worked hard to answer their questions and address their concerns. Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations. But despite our efforts, with its complaint today the SEC abandoned that process and instead chose to act unilaterally and litigate. We are disheartened by that choice.

Binance added that it will “defend our platform vigorously”, adding that “any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong, and there is zero justification for the Staff’s action in light of the ample time the Staff has had to conduct their investigation.”

Result Could Have Huge Impact

The result of this lawsuit could have a major impact on the crypto space when it is heard. Just as the news of the lawsuit caused the crypto market to drop, an SEC victory would have a devastating impact on the crypto market, at least temporarily. On the other hand, a Binance victory or a settlement would have a positive impact on prices, although the strength of this may depend on what has happened with Binance’s case against the CFTC.

A victory for the SEC might also have ramifications for the coins named as securities, as this could be seen as the judge (or jury, if it gets that far) confirming that the coins named are indeed securities, as the SEC hopes.