SEC’s Binance suit contains heavy mix of predictable charges, novel revelations

The world’s largest cryptocurrency exchange has been hit with an SEC suit that many saw coming, but the details will be studied closely.

The announcement of the United States Securities and Exchange Commission (SEC) suit against Binance, Binance.US and Binance CEO Changpeng Zhao (CZ) may have surprised the crypto community, but the SEC’s focus on the exchange was well known. The suit’s contents were met with a variety of reactions.

CZ claimed in a tweet on the morning of June 5, “Media gets the info before we do,” and the company had not seen the SEC complaint then. Evidence of scrambling behind the scenes may be seen in the two statements Binance issued in response to the suit.

The exchange called the suit “disappointing” in a blog post and emphasized the SEC’s failure to provide clarity and guidance, as well as its impact on financial innovation. A later statement distributed by email addressed legal issues more closely, claiming there was a lack of due process and promising a vigorous defense.

No one who was paying attention should have been taken unawares by the SEC’s complaint, Cory Klippsten, CEO of financial firm Swan Bitcoin, said of the allegations. He claimed in a statement to Cointelegraph:

“These practices of Binance have essentially been open secrets, so no one who operates in the space will be surprised by any of the charges.”

Some of the details will still raise eyebrows. The most quotable passage in the suit undoubtedly came from the unnamed Binance chief compliance officer in 2018, who said in a message to another company officer:

“We are operating as a fking unlicensed securities exchange in the USA bro.”

More light was shed on Brian Brooks’ brief tenure as CEO of Binance.US. Brooks, former U.S. comptroller of the currency and CEO of Binance.US for three months in 2021, is memorably quoted in the suit (as “CEO B” of BAM Trading). According to the SEC, Brooks said in testimony:

“[W]hat became clear to me at a certain point was CZ was the CEO of BAM Trading, not me. […] I realized, huh, I’m not actually the one running this company, and the mission that I believe I signed up for isn’t the mission. And as soon as I realized that, I left.”

The SEC has repeatedly claimed that nearly all cryptocurrencies are securities, so the list of 10 tokens may also be illuminating. There are familiar claims, such as that Filecoin (FIL) is a security. Algorand (ALGO) has also been singled out before.

For Solana (SOL), Cardano (ADA) and Polygon (MATIC), the Binance suit may be a warning shot, however.

And guess which tokens are illegal securities offerings. Spoiler alert it includes Solana and Cardano. pic.twitter.com/wMdICfIE3j

— Stephen Diehl (@smdiehl) June 5, 2023

There were already signs that a shakeup was underway at the exchange. Nearly simultaneously with the news of the SEC’s complaint, Bloomberg reported Richard Teng may be favored to replace CZ as the exchange’s next CEO. The news service cited “persons with direct knowledge.”

Teng was appointed to head all regional markets outside the U.S. on May 29. He joined Binance Singapore in August 2021, coming from the Financial Services Regulatory Authority at Abu Dhabi Global Market, where he was CEO, and “quickly rose through the ranks.”

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