In June 2023, the Securities and Exchange Commission of the United States lodged 13 charges against Binance, the world’s biggest exchange, and its renowned founder Changpend Zhao, aka, CZ. The crypto world was taken aback by the allegations made against the leading player in the industry by the US regulator, accusing CZ of redirecting billions of dollars to Europe and other unrestricted international subsidiaries.
The US SEC contended that Zhao and Binance deliberately circumvented their internal controls. This alleged subversion was done with the intent to enable high-net-worth US investors and customers to persist in trading on Binance's unregulated international exchange.
This was obviously not the best news for the industry as the biggest player in the game was dragged to the floor of the court by a rogue self-claimed regulator. Today, when the SEC vs Binance Case has reached a final settlement and Changpeng has to plead guilty, step down, and will have to accept a most likely jail sentence, it is the right time to examine what went wrong for Binance.
The US SEC filed charges against Binance, its founder Changpeng Zhao, and affiliated entities, citing 13 violations. The allegations encompass the operation of unregistered exchanges, broker-dealers, and clearing agencies. Binance is accused of misleading practices, including misrepresenting trading oversight on Binance.US and facilitating undisclosed high-value trading for U.S. customers on Binance.com.
The charges levied against Binance involve a range of issues, such as mishandling customer assets, commingling funds, engaging in deceptive trading practices, and offering unregistered crypto assets. Founder Changpeng Zhao is implicated as a key figure in these violations. The SEC highlights concerns over a lack of transparency, related-party transactions, and assertions of manipulative trading controls that were allegedly false.
According to the SEC, Binance reportedly generated more than $11.6 billion in revenue from U.S. customers.
U.S. prosecutors have accused Binance of not having strong measures to prevent illegal financial activities. Because of this, people could use the platform with little oversight, making it a place for shady dealings.
Regulators’ biggest concern was that Binance unintentionally helped with money laundering for groups involved in terrorism. The U.S. Treasury found cases where Binance was used to send funds to organizations like Hamas, using cryptocurrency for activities that could harm U.S. national security.
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” said US Treasury Secretary Janet Yellen.
As per the prosecutor, Binance also broke sanctions by allowing transactions of about $900 million for people in regions facing sanctions, like Iran, Syria, Cuba, and conflict areas in Ukraine. The U.S. Department of Justice strongly condemned Binance for not being careful, highlighting the potential risks to national security.
As a result of these findings, Binance faced significant fines, and it brought more attention from regulators around the world to the entire cryptocurrency community.
In a surprising twist, Binance and its CEO Changpeng Zhao, admitted to doing illegal things and accepting that Binance did not have a good system to prevent those illicit transactions. The consequences of this confession were more than severe – Binance got a massive $4.3 billion fine, making it one of the biggest fines in U.S. legal history. CZ, personally, had to pay $200 million and step down from his position in Binance.
Following this, things didn't go well for Binance. People who used the platform started to lose trust, and about $805 million left Binance in just one day, showing that investors were being cautious.
Now, Richard Teng, CEO of Abu Dhabi Global Market, has been appointed as the CEO of Binance, who would be responsible for fixing the image of the exchange. Binance's plan to recover involves changing how they do things inside the company.
“Binance is no longer a baby. It is time for me to let it walk and run. I know Binance will continue to grow and excel with the deep bench it has,” CZ said in a post on X.
Binance has promised the regulators that they will make their systems better, especially for monitoring transactions, and build a strong system to prevent illegal activities.
Binance has also promised to work closely with regulators to fix their past mistakes. The road ahead not only requires making things right but also working hard to regain the trust of customers around the world.
Also Read: Binance May Face Tough Actions In India If Not Compliant
