Binance set for court battle with SEC in high-stakes lawsuit

abdelaziz Fathi

Binance, the world’s largest cryptocurrency exchange, is preparing for yet another legal faceoff with the U.S. Securities and Exchange Commission (SEC) in a Washington courtroom today. This hearing follows a recent one involving the SEC and another major crypto exchange, Coinbase.

Binance CEO Changpeng Zhao

The SEC filed a lawsuit against Binance in June, levying serious allegations against the company, its CEO Changpeng Zhao, and Binance.US’s operator. The charges include artificial inflation of trading volumes, misappropriation of customer funds, failure to restrict U.S. customers from its platform, and misleading investors about its market surveillance controls. Furthermore, Binance is accused of facilitating trading of various crypto tokens that the SEC considers to be securities.

Binance’s hearing comes just two days after Coinbase faced the SEC in court under different allegations, chiefly operating as an unregistered securities exchange. Unlike Binance, Coinbase does not face any fraud charges.

BAM Trading, which operates Binance.US, has stated in court filings that the SEC has not sufficiently proven that Binance committed fraud. Binance has also challenged the SEC’s authority over crypto assets, echoing a similar defense used by Coinbase’s lawyers, who are also seeking to dismiss the case against them.

Last year, CZ pleaded guilty to anti-money laundering and sanctions violations following years-long probes by federal regulators. As part of a settlement, Binance, the cryptocurrency exchange he co-founded, agreed to pay $4.3 billion, making it one of the largest corporate settlements in history. Additionally, CZ agreed to pay a $50 million fine and stepped down as CEO of Binance.

Binance also tried to dismiss the lawsuit brought by the CFTC, arguing that the agency is overstepping its jurisdictional boundaries by attempting to regulate foreign entities operating outside the United States. Binance criticized the CFTC’s effort to expand its authority beyond the confines of the U.S. Commodity Exchange Act.

The cryptocurrency exchange further highlighted that the CFTC introduced broadened arguments and redefined the term “U.S. person”, suggesting the regulator was seeking global control over any activity related to derivatives products in the crypto domain.

With a potential maximum prison sentence of 18 months as per federal guidelines, Zhao has committed not to appeal any sentence up to that duration. However, it wasn’t decided whether CZ can leave the United States before his sentencing, which is scheduled for February 23, 2024.

Zhao’s defense argues that he does not pose a flight risk, as previously determined by Judge Brian Tsuchida, and that the government has not provided adequate grounds for an appeal to overturn this finding. They elaborated on CZ’s visibility as a global public figure and his track record, including a lack of criminal history and the non-violent nature of his offenses, to argue against the necessity of him staying in the U.S. before sentencing.

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