The U.S. Securities and Exchange Commission (SEC) filed the application on January 3, 2023, in the U.S. District Court for the District of Columbia. The filing documents a lawsuit against Terraform Labs, its co-founder Dohyun Kwon, and Binance, Binance.US and Zhao ChangfengFormer CEO of Binance.
The SEC’s filing drew attention to Judge Jed Rakoff’s Dec. 28 ruling against Terraform Labs and Do Kwon. In this ruling, Judge Rakoff sided with the SEC and found that certain tokens involved in the alleged Terraform fraud were securities. This is an investment contract and the basis is that the offer and sale of UST constitutes an investment contract.
The SEC highlighted the relevance of Judge Rakoff’s analysis of Terraform’s ‘stablecoin’ UST to the lawsuit against Binance’s ‘stablecoin’. BUSD, Binance’s Staking-as-a-Service, BNB Vault, and Simple Earn programs. This connection was highlighted in the January 3 filing, which suggests Terraform Labs’ ruling could provide “additional grounds” for Judge Amy Jackson to consider denying Binance’s motion to dismiss.
The charges against Binance and Zhao include operating an unregistered exchange, broker-dealer, and clearinghouse. Misrepresenting trading controls and oversight on the Binance.US platform and offering and selling unregistered securities. The SEC alleges that while Zhao and Binance claimed that U.S. customers were restricted from trading on Binance.com, in reality high-value U.S. customers continued to trade on the platform. Moreover, Binance.US is known to be independent but is reportedly secretly controlled by Zhao and Binance.
SEC Chairman Gary Gensler accused Zhao and Binance of engaging in a “widespread web of fraud” that included conflicts of interest, lack of disclosure, and evasion of the law. The SEC’s complaint alleges that since at least July 2017, Binance.com and Binance.US, under Zhao’s control, have operated as exchanges, brokers, dealers and clearing agents, generating at least $11.6 billion in revenue from U.S. customers.
The SEC also charged Binance with BAM Trading for the unregistered offer and sale of BNB, BUSD and cryptocurrency lending products and the unregistered offer and sale of Binance.US’ stake-as-a-service program. I did. The complaint states that Binance secretly controls assets staked by U.S. customers in BAM’s staking program.
The Terraform Labs and Binance cases are part of a series of SEC enforcement actions in 2023 alleging that the platforms offered unregistered securities. These actions include lawsuits that: coinbaseThis indicates that regulation of the cryptocurrency sector, including Ripple and Kraken, is becoming more extensive.
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