The SEC slapped both Binance and Coinbase with weighty lawsuits within 24 hours — but their content appears to hinge upon markedly different legal arguments.
It was also necessary for the US securities regulator to adjust its legal position in order to accommodate both complex crypto exchanges.
Binance claims thirteen violations. SEC attorneys also listed CEO Changpeng. “CZ” Zhao is named as an defendant along with BAM Trading Services, BAM Management US Holdings and BAM Management US Holdings.
Philip Moustakis, a partner at New York-based law firm Seward & Kissel, told Blockworks that “the fundamental difference” Coinbase was hit by the SEC with both of these cases. “straight registration violations case.”
The SEC’s Binance lawsuit, meanwhile, filed on Monday one day prior to the regulator’s Coinbase action, contains a number of more complex allegations — which could be tied to more weighty consequences.
“The Binance suit, in addition to registration violations, includes allegations of fraud, market manipulation, commingling of investor funds, diversion of investment funds,” Moustakis’s statement. “So they are different cases.”
Brian Armstrong of Coinbase also clarified the differences in cases Tuesday afternoon via a Twitter.
“In case it’s not obvious, the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security. And we are confident in our facts and the law,” Armstrong tweeted.
Binance and Coinbase are both fighting back their lawsuits.
“We respectfully disagree with the SEC’s allegations,” Binance informed Blockworks via a written statement. Binance also denied this. “operated as an unregistered securities exchange or illegally offered and sold securities, including by offering BNB, or the BUSD fiat-backed stable coin.”
Latest SEC move against Binance, Coinbase
Binance and Coinbase both faced US court action in this past year. Coinbase, which was issued a Wells notification in March, is locked in legal dispute with the SEC.
Coinbase then filed a lawsuit against the SEC seeking clarification. SEC responded to a judge’s order. “deliberating over the kind of significant changes sought by Coinbase, which could affect both crypto assets and the securities markets more generally, takes time.”
The Commodities and Futures Trading Commission (CFTC) sued Binance on March 27, naming Zhao directly, as well as former Chief Compliance Officer Samuel Lim.
It was alleged that the transaction had been illegally conducted “operated a facility for the trading of futures, options, swaps, and leveraged retail commodity transactions involving digital assets that are commodities” For US Customers
Here’s a look at the differences — and similarities — between the SEC’s most recent lawsuits.
Coinbase
The SEC targets Coinbase in its lawsuit because it is alleged that Coinbase operates as a non-registered stock exchange, and offers unregistered security.
This 101-page document focuses the majority of its attention on 13 purported security: SOL (Sand), ADA (Matic), FIL (Sand), AXS(Chz), FLOW (“FLOW”), ICP (“ICP”), NEAR “VGX,” DASH, and NEXO.
Although several of these arguments overlap those made in Binance’s suit, SEC makes its case for the classification of cryptoassets in both cases as securities.
For example, Polygon’s native token, MATIC, is named in the suit — with the SEC using a 2021 tweet from Sandeep Nailwal, the protocol’s founder, as evidence that the “founders of Polygon continue to promote the platform through various social media.”
Both of the main accusations in the lawsuit seem to be in agreement with Binance’s SEC plan. Both exchanges are targeting the same staking service.
These are specific examples of violations the SEC cites in their Coinbase lawsuit:
- The Exchange Act Section 5, which states that Coinbase does not meet the requirements of an exchange, and is not a registered exchange. “effect transactions in a security, or to report any such transaction, without registering as a national securities exchange.”
- Coinbase is listed in Section 15(a), of the Exchange Act. “is a broker and made use of the mails and the means and instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, securities, without registering as a broker, and without being exempted from such registration.”
- Coinbase has been accused of performing Section 17A (b). “the functions of a clearing agency with respect to securities, without registering” The Exchange Act.
- CGI is accused in the suit of having violated the Exchange Act sections 5, 15, 17A (b), as it controls Coinbase.
- Coinbase is accused of violating Section 5(a), 5(c), and 5(d) Securities Act, by selling unregistered security through their Staking Program.
Binance
Binance.US’s staking program is also in SEC crosshairs, just like Coinbase.
“Since at least 2017, Binance and BAM Trading further violated the federal securities laws by illegally conducting unregistered offers and sales of securities to U.S. investors — in Binance’s case, the offers and sales of BNB, BUSD, Binance’s ‘BNB Vaul'” program, and Binance’s ‘Simple Earn’ program, and in BAM Trading’s case, the offer and sale of its staking-as-a-service program,” the suit alleges.
The SEC claims Binance and BAM Trading “The sale and purchase of cryptocurrency assets is not registered.”
BNB and BUSD — Binance’s native tokens — are targeted alongside 10 tokens, which include SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.
But the bulk of the lawsuit against Binance targets alleged internal fraud.
“Zhao directed Binance to assist certain high-value U.S. customers in circumventing those controls and to do so surreptitiously because—as Zhao himself acknowledged—Binance did not want to ‘be held accountable’ for these actions,” the filing claims.
It also cites multiple unnamed executives in the suit, including a chief compliance officer who reportedly said, “In the USA, we operate as an unlicensed fking securities exchange.”
They also said, “No, we don’t want [Binance]It is time to regulate.com.”
Here are the specific violations that the SEC names in the Binance suit:
- Section 5(a) and 5(c) of the Securities Act specifically against Binance for the unregistered sales of BNB.
- Section 5(a) and 5(c) of the Securities Act, again against Binance, for unregistered sales of BUSD.
- Binance also allegedly violated sections 5(a) and 5(c) of the Securities Act for its sale of Simple Earn and BNB Vault.
- Section 5(a) and 5(c) violations against BAM Trading for its Staking Program.
- Section 5 of the Exchange Act, stating that Binance.com did not register as an exchange.
- Section 15(a) of the Exchange Act for Binance not registering Binance.com as a broker-dealer.
- Section 17A(b) of the Exchange Act for Binance “Registering is not enough” Binance.com as a clearing agency.
- Section 5 of the Exchange Act for both Binance and BAM “Registering is not enough” Binance.US as an exchange.
- Section 15(a) of the Exchange Act for BAM Trading not registering Binance.US as a broker.
- Both BAM Trading and Binance allegedly violated 17A(b) by not registering Binance.US as a clearing agency.
- CZ allegedly violated Sections 5, 15(a) and 17A(b) of the Exchange Act as the “Binance.com Platform Control Person”
- Another violation of Sections 5, 15(a) and 17A(B) against CZ as the “Control person over Binance BAM trading for Binance.US platform violations”
- Sections 17(a)(2) and 17(a)(3) of the Securities Acts were allegedly violated by Bam Management and BAM Trading “The seller has engaged in one, two, three, four, five, six, seven, eight, nine, or more business practices or transactions that operate or could operate as a deception or fraud on the purchaser.”
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