Crypto investors have pulled a staggering $780 million from crypto exchange Binance in the last 24 hours after US SEC sued it for mishandling customer funds and ‘diverting’ them to separate firm owned by founder CZ. The SEC has also filed a lawsuit against Coinbase on Tuesday accusing it of illegally operating without having first registered with the regulator.
The SEC has also sued Binance’s billionaire CEO, Changpeng Zhao, in a case which alleges a ‘web of deception’ to evade US laws.
Investors withdrawing
Binance customers have pulled their tokens from both the international exchange and its US affiliate, Binance.US, in droves since the SEC launched legal action against the companies.
Net outflows from the crypto exchange Binance and its U.S. arm reached $791 million, crypto research firm Nansen said. The outflows spiked after Binance and its founder, Changpeng Zhao, were charged with 13 securities violations by the SEC.
Investors withdrew $1.65 billion worth of assets from Binance and $13 million from contested Binance’s U.S. arm on the Ethereum blockchain after the charges were unveiled. Inflows totaled only $871.8 million and $11.53 million to Binance and Binance.US, respectively.
According to data from Nansen which showed Binance suffered $778.6 million in just a 24-hour period, while Binance.US lost $13 million. Binance’s native BNB token was down over 12% since the lawsuit was announced, while its BUSD stablecoin lost another 1% of its market cap. The dollar pegged token had seen its market value slump from $18 billion to $5 billion following a previous SEC action.
SEC Allegations
The SEC alleged that Binance had been engaging in the unregistered offer and sale of securities, and that Zhao and his entities had improperly commingled investor funds with Binance’s funds. The agency also alleged that the exchange subverted its own controls to allow institutional U.S. investors to use Binance’s international exchange, rather than the supposedly firewalled U.S. version.
A similar ‘run on the bank’ situation preceded the collapse of the FTX exchange, run by Sam Bankman-Fried last year, although Binance has stated repeatedly that it has the reserves to cope with a rush of withdrawals.
The SEC alleged in 13 charges that Binance artificially inflated its trading volumes, diverted customer funds, failed to restrict US customers from its platform and misled investors about its market surveillance controls.
The lawsuit marks the most significant step against a crypto company by the SEC in its sweeping crackdown on the industry this year.
In statements on Monday, 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. ‘We intend to defend our platform vigorously,‘ it said in a blog.
The lawsuits have rocked the crypto markets and Bitcoin fell more than 5% on Monday, its worst daily decline since April 19. The world’s largest cryptocurrency was last at $25,723, near a more than 2 month low.
‘It’s another blow to the crypto industry and the crypto exchanges of the world,’ said Tony Sycamore, market analyst at IG Markets, of the SEC suit.
Binance’s BNB cryptocurrency, the world’s fourth-largest, fell 0.3% to a near three-month low of $277, after a 9.2% plunge on Monday, its worst daily fall since November.
The SEC complaint is the latest in a series of legal headaches for Binance. The company was sued by the U.S. Commodity Futures Trading Commission (CFTC) in March for operating what it alleged were an ‘illegal’ exchange and a ‘sham’ compliance program.
Binance was also accused of an unregistered sale offering of its BNB and BUSD tokens and an unregistered staking service.
Zhao and Binance’s two entities have strongly disputed the allegations. Zhao said the CFTC claims were an ‘incomplete recitation of facts’.
