Is Binance on a roll?

Mariia $uboch
Mariia $uboch
Cryptocurrency Crypto exchanges and trading
12 March 2024
Is Binance on a roll?

FUD around Binance is gaining momentum, temporary technical problems with cryptocurrency withdrawals are causing fear among exchange users like never before, and the outflow of funds from the platform is growing after the SEC lawsuit was announced. Let's take a closer look at what happened and will Binance follow FTX?

Outflow of funds from Binance

Outflow of funds from Binance

Where it all began
  • On June 5, the SEC sued Binance and its CEO Changpeng Zhao. The commission filed 13 charges, including the sale of unregistered securities. On June 6, the regulator filed a motion to freeze the digital assets of the exchange's U.S. unit.
  • On June 9, Binance.US users lost the ability to deposit dollars, which caused sales by those wishing to withdraw funds in fiat. Against this backdrop, a discount in the quotations of BTC paired with the dollar was formed on the platform - the figure reached ~$2200 (7.3%).
  • On June 17, the SEC and Binance entered into an agreement on client funds in the United States. The platform resumed withdrawing assets, but the company warned that the situation could change.
SEC charges

The SEC's lawsuit against Binance, Binance.US and Zhao was filed in June 2023, following a months-long investigation into the exchange's activities. The SEC alleges that Binance and Zhao committed a number of securities law violations:

  • Selling unregistered securities, broker-dealers - without complying with the registration, reporting and recordkeeping requirements of the federal securities laws.
  • Offering and selling unregistered securities to U.S. investors, including Binance's proprietary cryptoassets such as BNB, BUSD, cryptocurrency lending products, and bet-as-a-service programs.
  • Misrepresenting the nature and extent of its U.S. operations in order to secretly permit U.S. customers to trade on, which is not authorized to operate in the United States.
  • Misleading investors and regulators about the independence and oversight of Binance.US, which is purportedly controlled by Zhao and Binance behind the scenes.
  • Mixing investor funds with his own funds and diverting them to third parties owned by Zhao, such as Sigma Chain and Merit Peak Limited.
  • Engaging in manipulative trading practices that artificially inflated the trading volume and prices of cryptoassets on Binance.US.
Binance's response

Binance Binance and Zhao's defense denied the SEC's allegations and filed motions to dismiss the lawsuit. They argue that the SEC has no authority or jurisdiction over their activities and they have complied with all applicable laws. They allege that:

  • The SEC failed to prove that Binance or Zhao had any substantial contacts or connections with the United States, or that they targeted or solicited U.S. investors in any way.
  • The SEC failed to prove that any cryptoassets offered or sold by Binance or Zhao are securities under the federal securities laws, or that they have any characteristics or attributes of securities.
  • The SEC failed to prove that Binance or Zhao engaged in fraud or manipulation.
What happened next

As early as November 21, 2023, CZ agreed to resign and plead guilty to money laundering. He also agreed to pay a $50 million fine. Richard Teng, former global head of Binance's regional markets, was appointed as Binance's new CEO.

Binance also settled claims by the US Department of Justice, agreeing to pay a $4.3 billion fine.

On December 8, the U.S. Department of Justice released a series of documents revealing the oversight requirements for Binance, after which the U.S. Securities and Exchange Commission requested a review of the case based on new facts. Binance is now required to spend millions of dollars on audit maintenance and legal fees, as well as cooperate with authorities by opening up access to any documents, records and other media. Binance must also provide information about former employees, agents, intermediaries, consultants, licenses, suppliers and partners.

In addition, the exchange will implement additional procedures for internal controls, customer interactions and third parties. Binance will be required to oversee potential sanctions circumvention and fully report on the measures taken.

Binance has also committed to reporting under separate rules to FinCEN. The various monitoring reports will likely include "private, financial, confidential and business information." The company is obligated to instantly provide access, audits, analytical reviews and inspections to the Department of Justice, FinCEN and all types of financial regulators and law enforcement agencies for several years.

Did the CZ get away with it?

Despite Changpeng Zhao's agreement to pay a $50 million fine and cooperate with the investigation, he could still go to jail. CZ was facing up to 10 years in prison, but he will get no more than 18 months under the plea bargain. He was released from custody on $175 million bail, but he must report his whereabouts to the U.S. government. Additionally, US authorities were initially against the ex-CEO of Binance leaving the country, due to fears that he would "vaporize." However, CZ managed to travel to the UAE to visit his family and promised to return 2 weeks before the hearing.

The verdict was to be handed down on February 23, 2024, but the trial was postponed to April 30, 2024 - reasons unknown.

"If you don't have the funds for an attorney, one will be provided to you free of charge."

Benefit CZ is not concerned. Changpeng Zhao's counsel in the case against the SEC is William Burke. William is a respected and experienced attorney. This is not the first time he has defended clients in cases against US government agencies. He is also believed to specialize in financial crimes, Foreign Corrupt Practices Act (FCPA), congressional investigations, political matters and market manipulation. In the past, he served as Special Counsel and Deputy Counsel to President George W. Bush, Jr. and as a former federal prosecutor in New York. His track record and favorable reviews attest to his high competence and ability to provide a solid defense in complex legal matters. Given his experience and expertise, especially in cases involving government agencies such as the SEC, Burke appears to be well-prepared to handle a CZ case. However, the outcome of the litigation depends on many factors: the specifics of the case, the evidence presented, and the legal strategies utilized. Therefore, while Burke's involvement is a significant advantage, it is impossible to predict the outcome of a case based on his experience alone.

Withdrawing money from Binance?

It is up toeveryone to decide whether to leave Binance when there is so much hype around it, but we recommend, at least, diversifying risks and distributing your funds on different crypto platforms: for example, send part of your assets to the WhiteBIT exchange , especially since Ukrainians can pass verification on the platform in minutes with the help of Diy. In addition, you can also protect yourself by sending part of your invested funds to a cold wallet. Cold wallets are considered safer for storing assets, as they are not connected to the internet 24/7, like hot wallets, which include exchanges. However, they are not as convenient if you use your funds every day and need quick access to them, as you need to do a lot more manipulations to dispose of your assets compared to hot wallets.

How does the case affect the crypto industry?

The outcome of this case could have significant implications for the future of the crypto industry and its regulation in the U.S. and beyond. If the SEC wins, it could set a precedent for cracking down on other crypto platforms that operate in the U.S. or target U.S. investors. In addition, distrust of the Binance platform itself is already growing every year. The exchange's market share fell from 54.2% to 48.7% in 2023 after the SEC escalated the situation.

Withdrawing money from Binance?

Outflow of funds from Binance

In addition, a potential loss in court is a risk for the entire crypto industry, not just Binance. Despite its falling market share, the exchange is still the largest service provider in the crypto market and negative news around the platform could be a black swan for the entire industry. Remember the FTX crash - it wasn't just the FTT native token that was affected by the turbulence. Speaking of the native token: BNB (Binance's native token), despite growing along with the entire cryptoasset market, is also subject to fluctuations due to the news: investors remember FTT and its fall from $25 to $1 in one day on that very black day for FTX and don't want to lose funds in case of a negative outcome. That's why in November 2023, after CZ's guilty plea, the price of the coin fell by 15%.

On the other hand, if the lawsuit is dismissed or the SEC settles, it will mean a victory not only for Binance, but for the entire crypto industry. It could also serve as an incentive to increase dialog and cooperation between cryptocurrency platforms and regulators to create a more favorable and compliant environment for development.

Either way, the case is likely to shape the future of cryptocurrency regulation in the US and beyond. It will test the limits of the SEC's authority and jurisdiction over cryptoassets, as well as emphasize the need for clear and consistent guidance and rules for crypto platforms and investors.

This case is not just a legal battle between Binance and the SEC. It is also a cryptocurrency freedom fight or a regulatory compliance battle. It's a fight that will have profound implications for the entire crypto industry. Let's grab some popcorn and wait for the denouement.

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Life is a numbers game, a balance of assets and liabilities, a force that spurs the pursuit of happiness, of success. It works the same way in the world of finance, where every dollar counts - the stock exchanges are the main engine of this world.
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