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SEC sues Binance, CEO Changpeng Zhao

The Securities and Exchange Commission has sued Binance and its Founder & CEO Changpeng Zhao, accusing the exchange of violating securities law. Yahoo Finance's Jennifer Schonberger reports the details.

Video Transcript

SEANA SMITH: The Securities and Exchange Commission filing charges against Binance and its founders, CZ, for mishandling customer funds and breaking securities rules. Yahoo Finance's Jennifer Schonberger is following the story for us and has more on that now. Jen.

JENNIFER SCHONBERGER: Good afternoon, Seana. That's right, the SEC leveling 13 charges against Binance and its co-founder Changpeng Zhao for operating an illegal trading platform and misuse of customer funds amongst other allegations. SEC Chair Gary Gensler saying in a statement today that the world's largest cryptocurrency exchange, quote, "engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law."

According to the SEC, Zhao, or CZ as the CEO is known, and Binance understood that they were operating the Binance.com platform in violation of numerous US laws, including federal securities laws. According to the SEC's complaint, Binance's chief compliance officer bluntly admitted to another Binance compliance officer in December of 2018 that, quote, "We are operating as an effing unlicensed security exchange in the USA, bro."

Among the 13 charges, the SEC alleges Binance failed to register as a National Securities Exchange broker-dealer and clearing agency. The exchange also misled investors by claiming surveillance and controls over trading manipulation without actually having those controls in place.

Now, the SEC lawsuit also alleges Binance and CZ misused customers' funds and diverted them to a trading firm that CZ controlled called Sigma Chain. The SEC said Sigma Chain engaged in fraudulent trading that made Binance's volume appear actually larger than it was. Binance responding, looking like it's going to fight this lawsuit. A spokesperson telling me that the company will, quote, "vigorously defend its business," calling the SEC's actions, quote, "unjustified" and noting that, "Today, despite our efforts at productive engagement, the SEC abandoned and denied us due process and instead unilaterally chose to litigate. We respectfully disagree with the SEC's allegations that Binance operated as an unregistered securities exchange or illegally offered and sold securities."

We will see how Binance responds. The SEC has asked to have US assets frozen. Ladies.

SEANA SMITH: All right. Bitcoin off 6% today, heading back towards 25,000. Jennifer Schonberger, good job. Thanks so much.