Today, the Securities and Exchange Commission (SEC) sued cryptocurrency exchange Binance, its US subsidiary and its founder Changpeng Zhao (CZ). Among a series of claims related to securities violations, it alleges that it failed to register as a stock exchange, broker-dealer, and clearing agency and issued an unregistered security (BNB.

Former interim comptroller of the currency, Brian Brooks, was briefly CEO of Binance.US for four months in 2021 before resigning. The SEC’s complaint cites Brooks’ testimony.

Their allegations also repeat claims filed in March by the CFTC that Binance appeared to prevent US clients from trading on the international exchange Binance.com.

More than a year ago, the Wall Street Journal reported that the SEC was investigating CZ affiliates Merit Peak and Switzerland-based Sigma Chain. The SEC filing alleges that market maker Signa Chain engaged in laundering operations that inflated volumes on Binance.US. It adds that the undisclosed relationships with Merit Peak and Sigma Chain represented a conflict of interest.

“To the extent that these two liquidity providers were major sources of liquidity, meaning our clients couldn’t, you know, settle orders without those creators being present on our platform, I thought it was a real problem,” he testified. Brian Brooks. .

“It suggested that the company was, in fact, heavily reliant on CZ, not just as a control person but also as an economic counterpart and that’s problematic, so I thought we needed to consider removing them from the platform.”

He also testified that what “became clear to me at a certain point was that CZ was the CEO of BAM Trading (Binance.US), not me.”

It is alleged that $20 billion in transfers went through Merit Peak’s US bank account, which was used as a pass-through account for client funds, putting the money at risk. Most of the funds were then used to purchase Binance USD stablecoins.

There are numerous reports of mixing of client funds.

“We allege that Zhao and the Binance entities not only knew the rules of the road, but also consciously chose to evade them and put their clients and investors at risk, all in an effort to maximize their own profits,” said Gurbir S. Grewal, Director of the Compliance Division of the SEC.

In February, Paxos, the issuer of the Binance USD (BUSD) stablecoin, was instructed by the New York State Department of Financial Services (NYDFS) to halt further issuance. This was potentially a precursor to litigation and there were concerns about the loss of stability of the stablecoin. BUSD’s current market cap of around $5 billion is less than a third of the February figure. He briefly lost his tie when the SEC announced the litigation, but has since bounced back.