Regulation
How CZ’s conviction is just the start of Binance’s problems – DL News
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Ahead of Changpeng Zhao’s sentencing on Tuesday, his fans show their support for him.
“Many of us know that he did so many good things for the community and the world,” said a post on.
And it’s not just bad guys.
Family and friends sent letters to the Seattle court in support of the disgraced founder and former CEO of Binance, describing his good character.
His attorneys asked the court to consider granting him probation, given that he has shown remorse and worked with authorities to put controls in place.
But Binance still faces the US securities regulator in a civil suit, which presents a very different picture of Zhao.
The Securities and Exchange Commission said he ruled Binance and its supposedly independent U.S. arm with an iron fist, and even hired a consultant to create a plan to circumvent U.S. laws.
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This will not harm his image among his fans.
Zhao grew Binance from a startup to the world’s largest crypto exchange in just a year. In doing so, he became very rich and reached cult character status among crypto investors.
But what is striking about the securities watchdog’s lawsuit is that, if the allegations are true, it shows that Zhao was willing to risk the assets of those same investors, lying to them and even by negotiating against them.
The SEC filing contains many heavy technical terms that may obscure the seriousness of its allegations.
The regulator alleges that, among other securities law violations, Binance combined the functions of a clearing agency, broker and exchange.
He also accused Binance of misrepresenting the trading surveillance controls it put in place on its platform.
Translation?
Binance raked in billions of dollars from U.S. investors, while failing to put in place the type of investor protections that are standard on traditional exchanges, the SEC said.
Investors’ money — including about $1.8 billion from U.S. customers at the end of 2022 — was not kept safe in a bank, nor did Binance give customers much information on the wallets where their assets were stored.
The stock market was thus free to risk investors’ assets, moving them as it pleased. And he allegedly did so, even apparently spending commingled funds – $11 million – at a yacht dealer.
Binance also allegedly misrepresented its pricing data on CoinMarketCap and used two market makers controlled by Zhao to artificially inflate trading volume on the platform.
These are practices that actively harm investors.
To be clear, the SEC’s allegations are just that: They have yet to be proven in court.
Yet there is a lesson here.
Founder of FTX The Trial of Sam Bankman-Fried revealed how the portrayal of crypto founders as genius mavericks whose innovative contributions to society allow them to bend normal rules obscures how they harm investors.
It’s good to keep this lesson in mind as the SEC case unfolds.
Joanna Wright writes about crypto regulation for DL News. Email her at joanna@dlnews.com.