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In a groundbreaking development on June 5, 2023, the Securities and Exchange Commission (SEC) filed complaints against major players in the cryptocurrency world. The focus was on Binance Holdings Limited (Binance), BAM Trading Services Inc. (BAM Trading), BAM Management US Holdings Inc. (BAM Management), and Binance founder Changpeng Zhao (CZ). This article takes you through the intricacies of these legal actions and their potential repercussions.
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Allegations : SEC's Grip on Binance
Binance.com Under Scrutiny
The SEC alleges that Binance.com operated as an unregistered broker, exchange, and clearing agency. Shockingly, it provided securities services to U.S. customers without the required licenses, contradicting public claims of restricting U.S. customers.
Binance.US: Violations Galore
The SEC further alleges violations by BAM Trading, labeling it an unregistered broker, and accusing both Binance and BAM Trading of acting as an unregistered exchange and clearing agency for Binance.US. The Binance.US trading platform allegedly used technology licensed from Binance without proper registration.
Crypto Assets in Question
The SEC lists specific crypto assets, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, as securities offered through Binance.com and/or Binance.US, raising concerns under the Howey test.
Personal Liability: CZ in the Crosshairs
CZ faces personal liability, with the SEC holding him responsible for alleged Exchange Act violations related to Binance.com and Binance.US.
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Unregistered Securities Offerings
Apart from Exchange Act violations, the SEC asserts that Binance engaged in unregistered securities offerings, citing the BNB Token, BUSD Stablecoin, BNB Vault and Earn Program, and Binance.US Staking Program.
Negligence-Based Fraud Allegations
BAM Trading and BAM Management face accusations of negligence-based fraud related to misleading statements about market surveillance on the Binance.US trading platform, particularly wash trading.
Relief Sought: SEC's Legal Arsenal
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and civil monetary penalties against Binance, BAM Trading, CZ, and BAM Management. A notable move is the attempt to bar CZ from holding positions in SEC-reporting companies or issuers of SEC-registered securities.
Emergency Action: SEC vs. BAM Management
Following the Binance Complaint, the SEC filed an emergency action on June 6, 2023, seeking a temporary restraining order. This move aims to freeze BAM Management's assets and repatriate assets held for Binance.US customers, emphasizing the urgency of the situation.
Coinbase's Legal Quandary: SEC Strikes Again
On the same day, the SEC filed another complaint against Coinbase, Inc. (Coinbase) and Coinbase Global, Inc. (CGI), outlining multiple violations of U.S. federal securities laws.
Coinbase's Alleged Violations
The SEC accuses Coinbase of operating as an unregistered broker, exchange, and clearing agency in its core trading platform. Additional charges relate to Coinbase Prime and Coinbase Wallet, both labeled unregistered broker services.
Crypto Assets in Question (Again)
Similar to the Binance case, the SEC identifies crypto assets offered by Coinbase, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO, as securities under the Howey test.
Unregistered Securities Offerings Redux
Coinbase faces allegations of unregistered securities offerings through its staking program, involving XTZ, ATOM, ETH, ADA, and SOL.
Relief Sought (Again): SEC's Second Salvo
The SEC seeks permanent injunctions and disgorgement of ill-gotten gains against Coinbase and CGI, emphasizing the need to curb further violations of the Exchange Act and the Securities Act.
Legal Complexities and Coinbase's Counterplay
Coinbase's Administrative Lawsuit
Adding complexity, Coinbase has an ongoing administrative lawsuit against the SEC in the Third Circuit, demanding a response to its petition for new rules on digital asset securities.
Multistate Regulatory Action
The Alabama Securities Commission adds to Coinbase's woes, issuing a show cause order related to its staking program. This stems from a multistate task force involving securities regulators from various states.
What Lies Ahead: A Glimpse into the Future
The legal actions against Binance and Coinbase mark the beginning of protracted legal battles. Coinbase, in particular, expresses its intention to fully litigate the matter. Expect intricate legal maneuvers, negotiations, and possible disputes concerning service to unfold in the coming months.
Summary: Navigating Cryptocurrency's Legal Landscape
As the SEC tightens its grip on major cryptocurrency players, the legal landscape evolves rapidly. Investors, regulators, and industry players must brace for a prolonged legal tussle, with each move shaping the future of cryptocurrency regulation.
FAQs
- Q: What led to the SEC's complaints against Binance and Coinbase?A: The SEC alleges multiple violations, including unregistered broker activities and unregistered securities offerings by both Binance and Coinbase.
- Q: How are crypto assets implicated in these complaints?A: A: The SEC identifies specific crypto assets as securities under the Howey test, raising concerns about their offering and sale.
- Q: What emergency actions has the SEC taken in the Binance case?A: The SEC filed an emergency action, seeking a temporary restraining order to freeze assets and repatriate funds related to Binance.US.
- Q: What is Coinbase's counterplay against the SEC's actions?A: Coinbase has an ongoing administrative lawsuit against the SEC, demanding a response to its petition for new rules on digital asset securities.
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