Binance profits billions of USD, secretly transferring customers’ funds to the company controlled by CEO Changpeng Zhao.

The U.S. Securities and Exchange Commission (SEC) has accused Binance, the world’s largest cryptocurrency exchange, of mishandling customer funds. The company’s deception of regulatory authorities and U.S. investors regarding its operations is believed to pose a potential risk of reshaping the cryptocurrency industry

This marks the second lawsuit filed by the SEC this year against Binance, alleging that the exchange evades responsibility in protecting U.S. investors. The regulatory agency has long considered Binance, with an average daily trading volume of $65 billion, as a primary target in the effort to promote transparency and regulation in the cryptocurrency industry.

In the lengthy 136-page complaint, the SEC alleges that Binance mixed billions of dollars of customers’ funds and subsequently secretly transferred them to a separate company named Merit Peak Limited, controlled by Binance founder Changpeng Zhao.

The complaint also asserts that Binance deceived investors regarding its detection and control systems for manipulative trading activities, as well as its efforts to restrict U.S. users on the international platform. These individuals were only supposed to have access to Binance.US, a separate company established to operate in the United States.

“Binance and Mr. Zhao have enriched themselves to the tune of billions of dollars while exposing investors to the risks,” regulators stated in a civil lawsuit filed in the U.S. District Court in Washington.

In a recent blog post, Binance claimed to have attempted to negotiate a settlement with regulatory agencies while expressing “disappointment” and “displeasure” with the SEC’s decision to file the lawsuit. The exchange stated that “this is an error” and asserted that it would vigorously defend itself.

According to The New York Times, the allegations are the latest move by regulatory authorities to curb the expansion of digital currency transactions and enforce compliance with U.S. laws by major players. Sam Bankman-Fried, the founder of FTX, a rival exchange to Binance before it filed for bankruptcy, has also faced a court trial in October following a series of allegations. In recent months, the SEC has also taken administrative enforcement actions against several cryptocurrency lending companies.

Reena Aggarwal, a finance professor at Georgetown University, stated, “U.S. regulators are posing significant challenges for Binance and continue to keep an eye on the world of digital currencies.”

In March, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance and Mr. Zhao. The Department of Justice is also investigating the exchange over suspicions of money laundering. Attorney David Silver stated that the SEC’s complaints have “exposed the dark side of digital currencies” and Binance’s deception of customers over the years.

In total, the SEC has brought forth 13 allegations against Binance and Mr. Zhao. The agency is also seeking compensation from Binance while aiming to prevent CZ from leading any entity registered in the United States.

Gurbir S. Grewal, the Director of the SEC’s Enforcement Division, stated, “We allege that Zhao and Binance intentionally evaded regulations, exposing customers and investors to risks.“

It is reported that the CFTC is seeking to permanently expel Binance from the United States. While the CFTC and SEC often collaborate in investigations, it is unclear which agency will play the primary role in regulating digital currency transactions.

Moreover, Binance is accused of concealing its ties to China for several years, according to the Financial Times. This contradicts previous statements by executives that the cryptocurrency exchange had severed connections with the mainland after the industry-wide crackdown in late 2017.

According to the allegations, CEO Changpeng Zhao and several senior executives repeatedly instructed Binance employees to conceal the company’s operations in China, including the use of an office until at least late 2019 and a Chinese bank for employee salaries.

In 2017, when China began tightening regulations on the cryptocurrency market, over 60 exchanges came under scrutiny. Many exchanges based in China had to announce their relocation abroad to avoid being shut down. Binance claimed to have completely ceased operations in the country.

However, in reality, the exchange continued to operate discreetly in the populous nation, even attempting to conceal the scope and locations of its activities when under surveillance by regulatory authorities. Binance is also accused of intentionally not disclosing the locations of its operational offices to evade regulations.

At the end of 2019, Employees were reminded: “Binance has offices in Malta, Singapore, and Uganda. Please do not confirm information about any other offices, including China.”

On March 27th, the CFTC filed a lawsuit in federal court, accusing Binance and several executives of consistently violating trading rules while becoming the world’s largest cryptocurrency exchange. The CFTC also alleges that Binance instructed U.S. customers to use VPNs to circumvent regulations and access the exchange’s services.

“The U.S. is in the most significant geopolitical competition. The Committee on Foreign Investment in the United States (CFIUS) is concerned about any deals related to China,” cited a former CFIUS official, as reported by the Financial Times.

According to: The New York Times, FT