Why SEC dey sue Binance
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Today we go reason di SEC complaint against Binance, we go deep am see di allegations and wetin fi come next.
SEC don enter Binance and CZ mata.
Na two months plus wey CFTC fire first shot for di fight between U.S. regulators and Binance. Dem talk say Binance dey violate plenti compliance and dey sidon on top AML/KYC controls.
Today, Gary Gensler and SEC don bring dia own set of allegations against CZ and im empire. Dis new suit no just focus on Binance giving U.S. customers access to Binance.com, e expand wella on top di allegations wey CFTC talk.
SEC dey call out specific products and tokens wey dem see for U.S. platform as securities. Dem dey ask question about di independence of Binance International and how e take relate with di U.S. subsidiary. Dem get evidence say customer funds dey mix anyhow and dem dey do wash trading and self-dealing to inflate trading volumes for Binance.US. E show say dem dey manipulate things for inside.
As e be so, di SEC don enta di matter with Binance and CZ. Di wahala don increase and e fi get serious consequences for dem. We go dey watch as di matter dey unfold.
Di Independence of Binance.US
E dey crucial for SEC to extend dia power beyond di U.S. subsidiary to di entire Binance International organization if dem wan tackle CZ empire directly. If di allegations wey dey inside dis complaint na true, den e be like say Binance International don make di task dey easy for SEC.
After dem first discover say serving U.S. customers for Binance.com dey make di CEX an unlicensed securities exchange (SEC Twitter account sef talk about am), Binance come hire plenti advisors to advise dem on how dem fi handle di legal matter.
One of di consultants come up with di "Tai Chi Plan," wey be one strategy to allow Binance dodge collaboration with U.S. regulators, while dem still dey operate for U.S. but with "moderate" risk.
Di plan involve di creation of di Tai Chi entity wey dem call – Binance.US – wey dem hope say go be “di target for all enforcement wahala wey don dey gather,” “reveal, slow down, and settle di enforcement wahala wey don dey gather,” and “ protect Binance from old and future liabilities. Under dis arrangement, Binance International go stop to dey collect fees from trading wey happen for U.S., instead dem go dey collect licensing and service fees from di U.S. entity.
Even tho dis plan suppose separate control of Binance.US from CZ and di main Binance company, for reality, dem still dey work togeda closely - since di beginning, CZ don dey hold at least 81% ownership for di companies wey dey control Binance.US.
Former CEO Brian Brooks, wey dem refer to as "CEO B" for di complaint, raise concerns about di dependence on Binance.US liquidity from two market makers wey get dey linked with CZ. E talk under oath to di SEC say e "believe say na serious problem" and suggest say di heavy dependence on CZ as both a control person and economic counterparty dey cause problem and e go better make dem remove am from di platform.
Up till at least December 2022, Binance International, through service agreements with e U.S. subsidiary, dey serve as di "designated custodian for crypto assets wey dem deposit, hold, trade, and/or accumulate for di Binance.US Platform."Dis arrangement give Binance "enough control to manage and authorize di transfer of crypto assets, including between different omnibus wallets," without needing any authorization from Binance.US.
Wetin cause concern na say di SEC talk say as dem publish di complaint, some crypto assets wey dey stored for Binance.US no dey "under [dia] exclusive custody and control," e mean say Binance International still hold custody for some part of di exchange's funds.
Security Offerings
SEC don flag plenti offerings for Binance as potential securities wey dem get issue with. Dem talk say dis alleged securities include staking-as-a-service (SaaS) programs wey Binance.US dey offer, and also include Binance's BNB, BUSD, BNB Vault, and Simple Earn programs.
Staking Services
Di SEC don decide to target plenti third-party assets wey dey pass di issue dem get with Binance. Dem dey go after popular assets wey Binance.US dey offer staking services for.
Dem target proof of stake tokens like Solana, Cardano, Filecoin, Atom, and Axie Infinity. At least dem no include Ether dis time 😅
E go hard for SEC to regulate all PoS tokens through dis action, but e dey show again say di relationship between crypto ecosystem and American regulators dey cause gbege.
BNB
Di SEC dey try make BNB look like security as dem talk say di money wey dem gather from "investors" go help Binance team “build world class crypto exchange’. Di whitepaper dey emphasize di knowledge and experience of CZ and di founding team, wey fi mean say di success of BNB investment depend on how Binance dey manage am.
One strong evidence wey SEC use to support di claim say BNB dey like security na di fact say Binance dey use profit buy back and burn tokens, and dis dey link di success of di centralized Binance company to di price of di token.
BUSD
Di SEC believe say di way Binance dey market BUSD APY opportunities and di establishment of di "BUSD Reward Program" show say investors fi expect profit from di stablecoin.
Even tho we no dey too surprise with di perspective from an agency wey dey quick to declare crypto assets as securities, di SEC dey operate under unaudited legal theory. Dia reason na similar to wetin dem talk for dia complaint against Luna's UST.
BNB Vault and Simple Earn
Di BNB Vault and Simple Earn programs dey look like easy targets for di SEC to attack. Dis programs gather people assets togeda to generate returns thru different ways (wey include staking, lending, or operational usage by internal Binance groups) and dem share di returns pro-rata to investors.
Based on US law, e dey likely say both of dis offerings fi classify as securities because di success of the investment depend on managerial expertise and di efforts of oda people.
Mixing of Funds
Remember how FTX bin mix customer money with Alameda and dem kon lend am, kon cause di exchange to collapse?
Even tho di SEC no talk say Binance dey insolvent, dem talk say di internal controls no dey effective as customer money bin dey divert frequently, and some of di money sef go fund personal expenses. Dis na very serious allegation!
Between October 2022 to January 2023, dem talk say CZ don personally collect $62.5 million from one of di Binance bank accounts. Even tho dem dey claim say Binance.US dey independent, dem still mix "billions of dollars of customer funds" from both di U.S. and International entities into one account wey CZ dey control. Dem come transfer money from dis account give third parties for di sake of buying and selling crypto assets, as dem allege for di complaint.
Apart from dat, di SEC talk say for 2021, dem transfer $190 million from Binance.US give anoda company wey Zhao dey control, wey dem call Sigma Chain. Di bank account wey collect di money come use $11 million buy yacht. E be like say dem spend customer money for something else.
Just More FUD?
No go dull am, di SEC claims against Binance na serious concern. But anoda concern na how di SEC dey try to restrict plenti people for di crypto industry.
Di commission no dey show genuine efforts to help di good people for di industry navigate di existing rules. E dey fair to question di SEC's intentions for dis complaint, even tho dem bring shocking allegations against CZ & Co.
Dis lawsuit show say we go face plenty regulatory battles for di future. But for some reason, dis situation dey show say di industry dey strong and resilient.
All di assets wey di SEC claim say na securities go still dey trade freely for decentralized exchanges. Di networks wey dem mention for di suit like Polygon, Solana, Alogrand, and di Cosmos Hub go continue to function.
Despite di government's best efforts, di crypto economy go continue to move forward.
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