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UPDATE - Why Binance is under investigation by the U.S. SEC

 


The United States Securities and Exchange Commission (SEC) is investigating whether Binance

Holdings broke securities rules when it launched its BNB token in an initial coin offering (ICO) five years ago.

Binance is one of the world’s largest cryptocurrency exchanges in terms of volume and value of transaction, and the native token of its blockchain, the BNB Chain, BNB, is the fifth-largest cryptocurrency in the world with a market capitalization of $45.4 billion as of the time of this writing. The BNB ICO took place in July 2017 on several platforms during a period in the cryptocurrency space popularly known as ICO boom period and the Binance exchange opened just days afterward.

According to Bloomberg, citing unnamed people familiar with the matter, at least one U.S. resident claimed to have taken part in the ICO, which could be a crucial fact for an SEC case, if the agency chose to pursue one.

What you should know

  • The SEC has claimed most cryptocurrencies are securities and brought cases against a number of ICO projects.
  • Binance founder and CEO, Changpeng Zhao, popularly known as ‘CZ’, explained in a 2020 blog post that the wording of the BNB white paper was changed in January 2019 because “the potential for being misunderstood as a security is higher in certain regions.” Binance’s American arm, Binance.US, was created later that year.
  • Also on May 6, Reuters published a lengthy special report alleging that Binance processed at least $2.35 billion of transactions from hacks, investment frauds and narcotics sales between 2017 and 2021.
  • Reuters also alleged that the exchange had weak “Know Your Customer” (KYC) and Anti-Money Laundering (AML) protections for those years.
  • Among other cases, Reuters also mentions the hacking of Eterbase, with some of the proceeds being laundered through Binance by North Korean hacker group Lazarus, and Binance’s association with Russian-language drug mart Hydra.
  • A Binance spokesperson disputed Reuters’ findings, and the exchange told Forbes in a statement that the report is a “woefully misinformed op-ed that uses outdated information from 2019 and unverified personal attestations.”

Binance is already the object of several U.S. federal investigations, including another SEC probe. The U.S. Commodity Futures Trading Commission began an investigation of the exchange’s trading practices last year.

Binance Markets, its United Kingdom branch, was ordered by the Financial Conduct Authority to cease activities in that county after a review of its operations last year. Additionally, Binance was ordered to cease operations in Ontario last June, although it remained active in the Canadian province until March of this year.

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