Cryptocurrencies and stock market with shares of crypto and blockchain related companies tumbled on Monday after SEC filed charges against Binance, giving another major blow to the volatile industry. The price of cryptocurrencies plunged on Monday after the U.S. Securities and Exchange Commission (SEC) accused the Binance securities with law violation “enriching themselves by billions of U.S. dollars while placing investors’ assets at significant risk” in a new lawsuit. The move was redolent of enforcement actions taken against FTX last year, which faces similar allegations of commingling customer funds.
Legal charges against Binance
The U.S. SEC pressed legal charges on Binance and its founder CZ for secretly controlling Binance.US as part of a “web of deception” to evade U.S. laws, among other charges. Reuters earlier reported that Binance controlled its US affiliate’s bank accounts, despite claiming it was independent. Binance and its founder now face 13 charges from the SEC: “We allege that CZ and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk—all in an effort to maximize their own profits,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
The SEC also said Binance artificially inflated trading volumes on the platform, diverted customer funds and failed to restrict U.S. customers from its platform and misled investors about market surveillance controls.
The charges filed in a federal court in Washington, D.C., are the latest in a string of enforcement actions brought by the agency in a bid to curtail the cryptocurrency industry, which SEC Chair Gary Gensler has described as “the wild West.”
Effect on crypto market
The SEC crackdown has prompted some crypto companies to increase compliance, spike products, and expand overseas, moves that some market watchers said would likely be accelerated by this latest action against the world’s largest crypto exchange.
Bitcoin, the world’s biggest cryptocurrency price was down 5.45% after falling to its lowest level since mid March following the news. Binance’s cryptocurrency fell 9.72%.
In statements, Binance said it had been cooperating with the SEC’s probes and had “worked hard to answer their questions and address their concerns” including by trying to reach a negotiated settlement.
“With its complaint today, the SEC abandoned that process and instead chose to act unilaterally and litigate. We are disheartened by that choice,” the company said.
Many big crypto companies started out in the belief their products did not fall within the SEC’s jurisdiction and say the rules are confusing. They are now “in a heap of trouble,” said James Angel, a finance professor at Georgetown University.
“They’d better be hiring lots of the best regulatory counsel that money can buy, because they’re going to need it.”
The enforcement action comes as the crypto industry has criticized the SEC and its chairman Gary Gensler of “regulation by enforcement” instead of clarifying rules around cryptocurrency. Last year, America’s largest registered crypto exchange, Coinbase, sued the SEC to clarify its rules around digital assets.
“This is yet another targeted attack that is devastating in the crypto ecosystem. Pretty soon, the SEC won’t have anyone left to sue,” said John Reed Stark, a former chief of the SEC’s Office of Internet Enforcement.
