SEC Alleges Binance CEO's Trading Firm Received $11 Billion in Client Assets

Binance CEO’s trading firm received $11 bln via client deposit company, SEC says

Merit Peak, an offshore trading company controlled by Binance CEO Changpeng Zhao, received around $11 billion of client assets through a Seychelles-based firm set up to take customer deposits, a U.S. Securities and Exchange Commission filing shows.

The SEC filing, which on Tuesday asked a U.S. court to freeze Binance’s U.S. assets, came a day after the SEC sued Binance, its billionaire CEO Zhao, and the operator of its U.S. affiliate exchange, for allegedly operating a “web of deception.”

In its 13 charges, the SEC alleged that Binance and Zhao used Merit Peak and Sigma Chain, another trading firm controlled by Zhao, to commingle corporate funds with client assets and use the monies “as they please.” This put customers’ assets at risk while Binance sought to “maximize” its profits, the SEC wrote in its civil complaint on Monday.

Robinhood Joins Coinbase in Saying It Tried to ‘Come In and Register’ Like U.S. SEC Wanted

“When Chair Gensler at the SEC in 2021 said, ‘Come in and register,’ we did,” Gallagher said in his testimony. “We went through a 16-month process with the SEC staff trying to register a special purpose broker dealer. And then we were pretty summarily told in March that that process was over and we would not see any fruits of that effort.”

His story echoes longstanding complaints from Coinbase, whose top lawyer was also present at the House Agriculture Committee on Tuesday and is now facing an SEC lawsuit alleging his company offered unregistered securities and didn’t get approval as an exchange.

SEC’s Gary Gensler Had Crypto in His Sights for Years. Now He’s Suing Binance and Coinbase.

Gary Gensler had seen enough.

In two years running the Securities and Exchange Commission, he said, he or his staff met dozens of times with cryptocurrency exchanges that were seeking special exemptions from the laws governing the rest of Wall Street. Those talks didn’t lead anywhere, and neither did Gensler’s efforts to cajole, prod and even threaten crypto into compliance.

Now the SEC is unleashing a barrage of enforcement actions against crypto’s biggest middlemen, in a fight that has existential stakes for the companies and could define Gensler’s legacy.

“I’ve been around finance for four decades,” Gensler said in an interview Tuesday. “I’ve never seen so much just noncompliance and hype masquerading as reality as I’ve seen in this field.”

SEC Snafu Leads to Lifting of Lifetime Securities Ban on Key Figure in Drexel Burnham Scandal

Could one of the central figures from one of history’s biggest insider-trading scandals be poised for a comeback?

Because of a bureaucratic snafu, the U.S. Securities and Exchange Commission last week quietly dismissed 42 pending enforcement cases in which the commission’s staff had improper access to materials intended for more senior officials.

Among them: One involving Dennis B. Levine, a central figure in the 1980s insider-trading scandal that hit so-called junk-bond king Michael Milken (and later significant philanthropist), bond-firm powerhouse Drexel Burnham Lambert and arbitrageur Ivan Boesky. Close readers of insider-trading history – or Wall Street executives with long memories – may remember the colorful role of Levine, a youthful Drexel banker with a red Ferrari Testarossa, a house in the Hamptons and other Wall Street status trophies.

Crypto Turns to Big Law for Defense Amid SEC Crackdown

Under Chair Gary Gensler, the SEC has made cryptocurrency-related enforcement a top priority and the recent actions from the agency this week signals that heightened scrutiny from U.S. regulators toward the industry will not be slowing down, which has fueled demand for legal services.

Big Law’s cryptocurrency and securities investigations practices have reported more litigation, enforcement, restructuring, bankruptcy work and public policy advising.

“There’s going to be a lot to follow on private litigation,” said Kayvan Sadeghi, co-chair of Jenner & Block’s fintech and crypto assets practice. “I think the plaintiffs bar is likely to follow the lead of the regulators and seek to bring a lot of actions leveraging the complaints and other statements by the SEC.”

The U.S. SEC Is Fighting the Last Crypto War, Charging Binance and Coinbase

The SEC’s suit against Coinbase in particular hinges on the moral presumption that cryptocurrency is inherently fraudulent and valueless. This allows them to paint Coinbase CEO Brian Armstrong as the same as Sam Bankman-Fried in the public eye – despite the fact that the first has run a stable and trustworthy service for a decade, and the second was an incompetent boob with zero moral compass or basic mathematical ability.

SEC Chair Gary Gensler advanced that muddying agenda this morning on CNBC. He first made noises about the SEC’s supposed neutrality on asset quality. But he then launched into a sweeping and frankly boneheaded disquisition against crypto as such, declaring that “we don’t need more digital currency, we have digital currency. It’s called the U.S. dollar. It’s called the euro. It’s called the yen. They’re all digital right now.”

This is not just an embarrassing misrepresentation, but one Gensler must know the truth of….

The Spectacular Implosion of the SEC’s Adjudication System

Last Friday afternoon, the Securities and Exchange Commission quietly issued what is arguably its most humiliating administrative order ever. In one fell swoop, the SEC unconditionally gave up against more than 40 enforcement targets the agency had previously spent untold staff resources prosecuting over the past decade. In essence, what I’ve previously called the SEC’s “Hotel California” adjudication system just imploded and collapsed into a pile of smoldering regulatory rubble.

It was a fitting end to a catastrophically bad policy choice made by agency leaders a decade ago. Not content to allow enforcement targets to defend themselves in federal courts with independent, Article III judges overseeing trials before juries, SEC leaders got too clever by half. Exploiting a provision of the Dodd-Frank act of 2010, they began shoehorning as many enforcement prosecutions as possible into their own in-house adjudication system, where cases are initially decided by SEC employees called administrative law judges (ALJs) and appeals are heard by the SEC commissioners themselves.

In hindsight, it’s amazing that anyone could have thought this obviously unconstitutional gambit would end well.

Mystery Bet Before SEC Crypto Crackdown May Mint Trader Millions

Less than a half hour before US regulators cracked down on a key crypto exchange, an options trader made a short-term bet against Coinbase Global Inc. that may have netted them millions of dollars.

At 10:36 a.m. on Monday, a block of 4,806 contracts of Coinbase $50 puts expiring Friday hit the tape, when the stock was at $61.77. Roughly 24 minutes later, the Securities and Exchange Commission announced that it was suing Binance Holdings Ltd, sparking a selloff across the crypto universe.

By noon in New York, Coinbase shares had fallen nearly 12% and the options, which had been bought for 18 cents each, traded for as much as $1 — a gain of almost 460% if sold at the peak.

When Is a Token Not a Security?

The more interesting ones, though, are Cardano’s ADA token (No. 7 on the list), Solana’s SOL token (No. 9) and Polygon’s MATIC token (No. 10). The SEC absolutely thinks these tokens are all securities; it said so, in some detail, in court filings this week. But it has not sued Cardano or Solana or Polygon for selling these tokens illegally. I don’t really know why, but any combination of Reason 2 (they are pretty big and entrenched and decentralized, so it’s hard to even know who to sue), Reason 3 (they did follow best practices; Solana, for instance, sold its tokens through a SAFT and filed forms with the SEC about the offering), Reason 4 (so many tokens, so little time) and Reason 5 (it is still early days) is possible. I would probably bet mostly on Reason 3: These are tokens that were issued in securities offerings to raise money for crypto projects, but they weren’t issued in illegal securities offerings. These projects had good lawyers and were launched in a time of sunny optimism for crypto regulation in the US; they tried to follow the law as they understood it, and more or less succeeded.