Binance, the world’s largest crypto exchange, and its former CEO, Changpeng Zhao, are embroiled in a legal tussle with the U.S. Securities and Exchange Commission (SEC). The SEC’s latest court filings suggest that Binance and Zhao attempted to deliberately sidestep U.S. laws. This accusation comes after a $4.3 billion settlement with the Department of Justice (DOJ), where both parties entered plea deals. The SEC asserts that these plea deals contradict Binance’s previous defense concerning extraterritorial jurisdiction.
Binance’s legal strategy and DOJ settlement
Binance’s legal strategy has been under scrutiny since September, when it moved to dismiss the SEC case. The crypto exchange argued that the SEC was manipulating securities laws to encompass the crypto domain and trying to extend its jurisdiction through litigation. However, as part of its settlement with the DOJ, Binance admitted non-compliance with U.S. laws to retain and attract users in the country. This admission weakens its position against the SEC’s charges.
Moreover, the SEC highlighted Binance’s use of a U.S.-based technology service provider and transactions amounting to approximately $1.2 billion by Merit Peak, a market maker owned by Zhao. These operations further entangle Binance in the U.S. regulatory web, challenging the exchange’s earlier jurisdictional arguments.
Impact on Zhao
Changpeng Zhao, who stepped down as CEO following the plea deal, now faces a sentencing hearing scheduled for next year. The SEC’s filing points to Zhao’s pursuit of company benefits while neglecting legal obligations, such as implementing an effective anti-money laundering program. These actions, according to the SEC, were directly aimed at the U.S. market, thereby justifying the court’s jurisdiction over him.
The SEC initially targeted Binance and Zhao in June, alleging violations of securities laws, mismanagement of customer funds, and failure to register under the Exchange Act. These allegations mark a pivotal moment in the ongoing debate over cryptocurrency regulation and enforcing existing financial laws in the digital asset space.
