After the U.S. Securities and Exchange Commission (SEC) filed suit against them last week alleging they were operating an unregistered securities exchange, Binance, the largest cryptocurrency exchange in the world by volume, shared a graphic on Twitter outlining some of its core business practices focused on “building for our users,” “community” and “financial inclusion.”
“Our wallet addresses? Transparent and open for all to see. Misappropriated user assets? Has never and will never happen. Debt in our capital structure? Nope, never had it. Unsecured lending? That’s simply not how we do business. Grand political donations? Not part of our agenda. We are a community of people united by the promise of financial inclusion. Of different races, ethnicities and creeds. We are Binance. We will keep building for our users and standing up for this industry,” Binance published in a June 6 Twitter post.
Patrick Hillmann, Binance’s chief communications officer, said in a tweet that the SEC’s attempts to equate all crypto exchanges to the failed exchange FTX are hindering productive developments of consumer protections in the industry.
“The ongoing effort to paint the whole industry with the broad brushstroke of FTX is blatantly transparent and detrimental to users across the globe. There is room to grow in this industry from a user protection standpoint, but the discussion must be grounded in reality,” Hillman said.
Sam Bankman-Fried, the founder and former CEO of crypto exchange FTX, is facing 13 criminal charges related to his misuse of customer funds, which led to the bankruptcy of his exchange. Bankman-Fried is accused of using customer assets to purchase real estate, make political donations and cover losses at Alameda Research, his hedge fund, Coachella Valley Times previously reported. Bankman-Fried donated approximately $40 million during the 2022 election cycle, primarily to Democratic politicians, but also to Republicans. Bankman-Fried had a relationship with SEC Chair Gary Gensler, and members of the public have suggested that this relationship is the reason the SEC failed to notice warning signs of FTX’s mismanagement and impending collapse.
Brian Armstrong, the CEO of Coinbase, the largest crypto exchange in the U.S., which is also being sued by the SEC, said in a tweet in response to his company's lawsuit, "We're proud to represent the industry in court to finally get some clarity around crypto rules."
Financial news analyst Matt Levine, a former attorney and investment banker, reviewed the complaints against Binance and Coinbase and wrote in his "Money Stuff" column, "Every crypto exchange in the U.S. is illegal….Just being a crypto exchange in the U.S. is, in the SEC’s eyes, illegal.”
Levine notes that when the SEC is particularly concerned about a bad actor “stealing all of its customers’ money” they make it a point of focusing on that above all else as they did in their actions against FTX in December.
“When an exchange steals all the money, the SEC focuses on that. When it doesn’t steal all the money, the SEC focuses on the illegal securities exchange stuff,” Levine said.
Industry experts have said that the SEC's actions this year indicate attempts at a broad crackdown aimed at pillars of the crypto industry, The Trusted Professional reported. In the wake of FTX's collapse in November, the SEC began ramping up its enforcement actions in the sector. Former regulator Coy Garrison, a partner at Steptoe & Johnson LLP, said of the SEC, "There is a political incentive to bring bigger cases post-FTX to be viewed as the responsible cop on the beat."
SEC enforcement actions related to crypto companies increased by 183% in the six months after FTX's collapse, according to Coin Telegraph.
Changpeng Zhao (CZ), the Canadian CEO and founder of Binance, was featured as a guest on the "Bankless" podcast the week before the SEC's lawsuit. CZ said on the podcast that regulators had liked Sam Bankman-Fried, the former CEO of FTX, in part because he was young, American and well-educated, so when FTX collapsed and Bankman-Fried was discovered to be a fraud, regulators felt their trust had been betrayed. Consequently, CZ said, regulators are now lashing out at players in the crypto industry, regardless of how eager to comply those players are.
“They missed the bad guy, and now they're punishing all the remaining good guys,” CZ said.
California's state assembly passed a bill last fall that would have implemented a path for crypto companies to get licensed, but Gov. Gavin Newsom vetoed the measure, recommending a “more flexible approach," Coin Telegraph reported.