Upland: Berlin is here!

On June 5, 2023, the SEC filed extensive evidence. civil litigation Binance Holdings Limited, its various affiliates, and its beneficiary and CEO, Zhao Changpeng, alleging multiple violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. .

SEC and cryptocurrencies

Over the years, the SEC has made it clear that cryptocurrency enforcement is one of its top priorities. In 2022, The SEC Takes A Total Of 30 Cryptocurrency-Related Enforcement ActionsAnd through the first half of 2023, the SEC is on pace to increase by more than 25% from last year’s numbers. SEC Chairman Gary Gensler outspoken his concerns about the cryptocurrency industry in a recent article. Wall Street Journal interview:

“I have seen non-compliance in the traditional financial industry from time to time, but I have never seen an entire industry so predicated on non-compliance with the law. It’s the reality of the industry. [cryptocurrency] the business model. ”

The Binance lawsuit suggests that the SEC has taken a utilitarian approach to the cryptocurrency industry, essentially overlapping the functions and participants of the traditional securities industry with their crypto counterparts, for such large-scale violations. Shows how to sue allegations.

The lead defendant, inance Holdings Limited, is a Cayman Islands-based limited liability company that operates the binance.com platform, an international cryptocurrency trading platform serving customers in over 100 countries.

Binance operated through a network of subordinate or affiliated entities in multiple jurisdictions, all of which were tied to Zhao as a beneficiary. As stated in the complaint, Mr. Zhao has “denied ‘traditional thinking’ about corporate procedures and the regulatory requirements that go along with them,” adding, “Wherever I sit, there’s a Binance office.” Anywhere I meet someone will be a Binance office.”

In the United States, professionals who participate in securities markets are subject to significant regulatory oversight by the SEC. For example, a broker (a person who buys and sells securities on behalf of others) and a dealer (a person who buys and sells securities on his own account) must be registered with his SEC. Any organization or group of individuals that provides a marketplace that connects sellers and buyers of securities must constitute an “exchange” under the Securities and Exchange Act and be registered with the SEC.

Unless there are applicable exceptions, a company that sells its securities must file a registration statement with the SEC and make material disclosures about the company and its securities. In addition, any person acting as an intermediary in payment exchanges for securities also constitutes a “clearing institution” that must be registered with the SEC (again subject to applicable exemptions). Finally, a “broker-dealer” is a “financial institution” subject to the Bank Secrecy Act (“BSA”), which the SEC is authorized to legally enforce.


Binance was aware of all of this, as the complaint alleges. In a chat exchange with a Binance employee, the company’s Chief Compliance Officer (“CCO”) said: “If US users visit .com” [w]e will be regulated by US regulators FinCEN OFAC and SEC. To evade regulation, Binance embarked on a massive scheme to hide its U.S. customer base, thereby breaking numerous laws. In the words of her CCO of Binance, “We operate as an unlicensed stock exchange in the United States.”

Central to Binance’s alleged efforts to circumvent U.S. regulation was manipulation of the KYC process. Binance has issued a number of public statements denying US-based activity and promoting restrictions on US-based activity, stating, “On the other hand, we are offering US customers a virtual private network that spoofs their location. We informally encourage circumvention of these restrictions through the “strategic processing” of (“VPN”).” This will allow Binance to “minimize the economic impact” of its public declaration that it is barring U.S. investors from participating in its platform. ”

To hide its U.S. presence, Binance allegedly encouraged customers to bypass Binance’s geoblocking of U.S.-based IP addresses by using a VPN service to hide their location. It also encouraged certain US-based “VIP” customers to circumvent Binance’s KYC restrictions by submitting up-to-date KYC information that omits US ties. Additionally, until August 2021, Binance did not require KYC documentation from all customers.


Binance faces 11 allegations for various trading law violations. These offenses include involvement in the illegal sale of securities. Acts as an unregistered exchange, broker-dealer and clearing house. Responsibility of the ruler to Zhou. and securities fraud.

Interestingly, the SEC is filing securities fraud allegations under Section 17(a)(2) of the Securities Act, not Section 10(b) of the Securities Act and its Rule 10b-5. Securities fraud is typically enforced civilly under Rule 10b-5, but in recent years the SEC has begun asserting more claims under 17(a)(2). The elements of Rule 10b-5 and Section 17(a)(2) are similar in that each requires a false statement or omission of a material fact. The lawsuit centers on Binance’s statements regarding its KYC program and avoidance of the US market.

The main difference between Section 17(a)(2) and Rule 10(b) is that Section 17(a)(2) does not require a scientist and can be established if the defendant commits negligence. There is In contrast, defendants must have acted recklessly because civil violations of Rule 10b-5 require scientists. Filing a Section 17(a)(2) lawsuit against Binance would mean that the SEC would take advantage of a shortage of necessary scientists to pursue a Section 17(a)(2) lawsuit more enthusiastically. Indicates that there is a possibility of follow-up.

On the minds of many interested in SEC enforcement action is the Supreme Court decision. Recent announcements will deal with the precedent set in the 1984 court case Chevron USA, Inc. v. NRDC, Next term is 467 US 837 (1984). Widely referred to as the Preceding Chevron Set. chevron With all due respect, I give federal agencies the power to interpret ambiguous statutes and do as they see fit.

The SEC’s classification of almost all cryptocurrencies as securities is unlikely to be compromised, but this is based on the SEC’s interpretation. Howie Deletion of test – derived from Supreme Court precedent, not statute chevron This principle will certainly affect the SEC’s rulemaking powers in the cryptocurrency space and could set the stage for future lawsuits.

By Jules

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