{"id":12664,"date":"2023-07-16T16:04:07","date_gmt":"2023-07-16T16:04:07","guid":{"rendered":"https:\/\/cryptoheretostay.com\/?p=12664"},"modified":"2023-07-16T16:04:09","modified_gmt":"2023-07-16T16:04:09","slug":"secs-lawsuit-against-binance-demonstrates-scope-of-its-crypto-enforcement-efforts","status":"publish","type":"post","link":"https:\/\/cryptoheretostay.com\/?p=12664","title":{"rendered":"SEC\u2019s lawsuit against Binance demonstrates scope of its crypto enforcement efforts"},"content":{"rendered":"<p> <script type=\"text\/javascript\">\r\namzn_assoc_placement = \"adunit0\";\r\namzn_assoc_tracking_id = \"totafreearti-20\";\r\namzn_assoc_ad_mode = \"search\";\r\namzn_assoc_ad_type = \"smart\";\r\namzn_assoc_marketplace = \"amazon\";\r\namzn_assoc_region = \"US\";\r\namzn_assoc_default_search_phrase = \"crypto\";\r\namzn_assoc_default_category = \"All\";\r\namzn_assoc_search_bar = \"false\";\r\namzn_assoc_title = \"\";\r\namzn_assoc_rows =\"1\";\r\n<\/script>\r\n<script src=\"\/\/z-na.amazon-adsystem.com\/widgets\/onejs?MarketPlace=US\"><\/script><br \/>\n <\/p>\n<p>On June 5, 2023, the SEC filed an extensive civil complaint against Binance Holdings Limited, its assorted affiliates, and its beneficial owner and CEO, Changpeng Zhao, alleging multiple violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.<\/p>\n<h2>The SEC and Crypto<\/h2>\n<p>For years, the SEC has clarified that crypto enforcement is among its highest priorities.\u00a0 In 2022, the SEC brought a total of 30 cryptocurrency-related enforcement actions, up 50% from 2021.\u00a0 And, through the first half of 2023, the SEC is on pace for more than a 25% increase from last year\u2019s numbers.\u00a0 Gary Gensler, SEC Chair, bluntly stated his concern with the crypto industry in a recent Wall Street Journal interview:<\/p>\n<p>\u201cI\u2019ve seen some non-compliance from time to time in traditional finance, but I\u2019ve never seen a whole field so built upon non-compliance with law, and frankly speaking, that\u2019s what a lot of the [cryptocurrency] business model is.\u201d<\/p>\n<p>The Binance lawsuit illustrates how the SEC will litigate such alleged wholesale non-compliance taking a utilitarian approach to the crypto industry, essentially overlaying the functions and participants in the traditional securities industry against their counterparts in crypto.<\/p>\n<p>inance Holdings Limited, the lead defendant, is a Cayman Islands-based limited liability company that operates the binance.com platform \u2013 an international crypto asset-trading platform serving customers in more than 100 countries.<\/p>\n<p>Binance operated through a web of subordinate or affiliated entities, in multiple jurisdictions, all tied to Zhao as their beneficial owner.\u00a0 As the Complaint sets forth, Zhao \u201chas been dismissive of \u2018traditional mentalities\u2019 about corporate formalities and their attendant regulatory requirements,\u201d stating: \u201cWherever I sit is the Binance office.\u00a0 Wherever I meet somebody is going to be the Binance office.\u201d<\/p>\n<p>In the United States, professionals participating in the securities market are subject to significant regulatory oversight by the SEC.\u00a0 For instance, brokers (those who buy or sell securities on behalf of others) and dealers (those who buy or sell securities for their account) must register with the SEC.\u00a0 Any organization or group of individuals who provide a marketplace for bringing together buyers and sellers of securities constitutes an \u201cexchange\u201d under the Exchange Act, is required to register with the SEC.<\/p>\n<p>Unless there is an applicable exemption, any company offering its securities for sale must file a registration statement with SEC making significant disclosures about the company and its securities.\u00a0 Furthermore, any person who acts as an intermediary in exchanging payment for a security constitutes a \u201cclearing agency\u201d also required to register with the SEC (subject again to available exemptions).\u00a0 Finally, \u201cbroker-dealers\u201d are \u201cfinancial institutions\u201d subject to the Bank Secrecy Act (\u201cBSA\u201d), which the SEC is statutorily authorized to enforce.<\/p>\n<h2>The Complaint<\/h2>\n<p>As the Complaint alleges, Binance was aware of all of this.\u00a0 In a chat exchange with a Binance employee, its chief compliance officer (\u201cCCO\u201d) stated: \u201cIf US users get on .com [w]e become subjected to the following US regulators, FinCEN OFAC and SEC.\u201d\u00a0 To avoid regulation, Binance engaged in an extensive scheme to conceal its United States customer base, thereby breaking numerous laws.\u00a0 In the words of the Binance CCO: \u201cwe are operating as a fking unlicensed securities exchange in the USA bro.\u201d<\/p>\n<p>The heart of Binance\u2019s alleged efforts to evade US regulations was manipulating its KYC processes.\u00a0 Binance made numerous public statements disavowing any US-based activity and touting restrictions against U.S.-based activity \u201cwhile privately encouraging U.S. customers to bypass these restrictions through the \u2018strategic treatment\u2019 of virtual private networks (\u201cVPNs\u201d) that would disguise their locations and thereby \u2018minimize the economic impact\u2019 of Binance\u2019s public proclamations that it was prohibiting U.S. investors on the platform.\u201d<\/p>\n<p>To allegedly disguise its U.S. presence, Binance encouraged its customers to circumvent Binance\u2019s geographic blocking of U.S.-based IP addresses by using a VPN service to conceal their location.\u00a0 It also encouraged certain \u201cVIP\u201d U.S.-based customers to circumvent Binance\u2019s KYC restrictions by submitting updated KYC information that omitted any United States nexus.\u00a0 Additionally, through August 2021, Binance did not require all its customers to submit KYC documents.<\/p>\n<h2>The Claims<\/h2>\n<p>Binance is facing eleven claims for various violations of the Exchange Act.\u00a0 Those counts include engaging in the unlawful sale of securities; acting as an unregistered exchange, broker-dealer, and clearing agency; controlling person liability against Zhou; and securities fraud.<\/p>\n<p>Interestingly, the SEC brings the securities fraud claim under Section 17(a)(2) of the Securities Act rather than Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.\u00a0 Securities fraud is typically civilly enforced under Rule 10b-5, but in recent years the SEC has begun to assert more claims under 17(a)(2).\u00a0 The elements of Rule 10 b-5 and Section 17(a)(2) are similar in that they each require an untrue statement or omission of material fact.\u00a0 In this case, the claim centers on Binance\u2019s statements concerning its KYC program and its avoidance of the United States markets.<\/p>\n<p>The key distinction between Section 17(a)(2) and Rule 10(b) is that Section 17(a)(2) does not require scienter and can be established if the defendant acted negligently. In contrast, a civil violation of Rule 10b-5 requires a scienter, so the defendant must have acted recklessly.\u00a0 Proceeding under Section 17(a)(2) against Binance indicates the SEC may be more eager to pursue those cases under 17(a)(2) to take advantage of the lack of required scienter.<\/p>\n<p>On the minds of many interested in SEC enforcement actions is the Supreme Court\u2019s recent announcement that it will address the precedent set by the Court\u2019s 1984 case <i>Chevron U.S.A., Inc. v. NRDC<\/i>, 467 U.S. 837 (1984) next term.\u00a0 The precedent Chevron set, widely referenced\u00a0as <i>Chevron<\/i> deference, gives federal agencies the authority to interpret vague statutes and carry them out as they seem reasonable.<\/p>\n<p>While unlikely to undermine the SEC\u2019s classification of almost all cryptocurrencies as securities, which is based on the SEC\u2019s interpretation of the <i>Howie<\/i> test \u2013 derived from Supreme Court precedent, not statute \u2013 elimination of the <i>Chevron<\/i> doctrine could certainly impact the SEC\u2019s rulemaking authority in the crypto space, setting the table for future litigation.<\/p>\n<p><script type=\"text\/javascript\">\r\namzn_assoc_placement = \"adunit0\";\r\namzn_assoc_tracking_id = \"totafreearti-20\";\r\namzn_assoc_ad_mode = \"search\";\r\namzn_assoc_ad_type = \"smart\";\r\namzn_assoc_marketplace = \"amazon\";\r\namzn_assoc_region = \"US\";\r\namzn_assoc_default_search_phrase = \"bitcoin\";\r\namzn_assoc_default_category = \"All\";\r\namzn_assoc_search_bar = \"false\";\r\namzn_assoc_title = \"\";\r\namzn_assoc_rows =\"1\";\r\n<\/script>\r\n<script src=\"\/\/z-na.amazon-adsystem.com\/widgets\/onejs?MarketPlace=US\"><\/script><br \/>\n<br \/><a href=\"https:\/\/cryptoslate.com\/op-ed-secs-lawsuit-against-binance-demonstrates-scope-of-its-crypto-enforcement-efforts\/\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On June 5, 2023, the SEC filed an extensive civil complaint against Binance Holdings Limited, its assorted affiliates, and its beneficial owner and CEO, Changpeng Zhao, alleging multiple violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC and Crypto For years, the SEC has clarified that crypto enforcement [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12665,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_wp_rev_ctl_limit":""},"categories":[3],"tags":[],"class_list":["post-12664","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ethereum-news"],"_links":{"self":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/12664","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12664"}],"version-history":[{"count":1,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/12664\/revisions"}],"predecessor-version":[{"id":12666,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/12664\/revisions\/12666"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/media\/12665"}],"wp:attachment":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}