Binance Lawsuit Triggers $700 Million in Withdrawals

Binance logo and stock graph are displayed in this illustration taken on June 28, 2021. (Dado Ruvic/Illustration/Reuters)

The Securities and Exchange Commission (SEC) lawsuit against crypto platform, Binance, triggered over $700 million in withdrawals as crypto traders continued to face losses.

The SEC filed 13 charges against Binance and its CEO, Changpeng “CZ” Zhao, for allegedly participating in an “extensive web of deception” to mislead customers and evade federal regulatory laws.

The case against the troubled crypto platform will be held in the U.S. District Court for the District of Columbia.

Outflows from Binance hit $719 million within 24 hours after charges were filed by the federal regulator on Monday, according to data from Nansen.ai.

At one point during trading hours, net withdrawals from the platform rose as high as $230 million after the SEC announced its lawsuit.

SEC Chairman Gary Gensler accused the defendants of attempting to evade U.S. securities laws “by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms.”

“Through 13 charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” Gensler said in a press release.

According to the SEC complaint, Binance and Zhao allegedly “secretly controlled” Binance’s American platform operations, despite publicly stating that it did not serve U.S. investors.

The defendants were accused by authorities of creating separate entities “to evade U.S. federal securities laws” and that Binance’s executives were allegedly aware of the legal violations.

“Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, ‘We are operating as a [expletive] unlicensed securities exchange in the USA, bro,” said the filing.

Binance Co-Founder and CEO Changpeng Zhao during a press conference at Europe's largest tech conference, the Web Summit, in Lisbon on Nov. 2, 2022. (Patricia De Melo Moreira/AFP via Getty Images)

The defendants have been accused of commingling customer funds and diverting some of them to a separate entity owned by Zhao, called Sigma Chain, which the SEC said engaged in “manipulative trading that artificially inflated the platform’s trading volume.”

The SEC also charged Binance for the unregistered offers and sales of crypto assets, including its exchange token, Binance BNB, and other crypto-lending products.

Binance said that it had actively cooperated with the SEC’s investigations and tried to address its concerns, but the regulator “chose to act unilaterally and litigate.”

“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously,” the platform said in a blog post.

“Unfortunately, the SEC’s refusal to productively engage with us is just another example of the commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.”

Cryptocurrencies Take a Fall

Cryptocurrency prices nosedived as much as $320 million across the board on Monday, as news of the multiple federal securities charges leaked to the media.

Despite the massive outflow of cash, which has shown no sign of stopping or slowing down, Binance’s stablecoin balance remains healthy, according to Nansen.

The crypto exchange has a current stablecoin balance of just over $8 billion, with a seven-day outflow of $519 million, or roughly 6 percent of holdings, while OKX, the second largest exchange, has a balance of $4 billion.

Meanwhile, Seoul-based crypto analytics firm CryptoQuant pointed out in a tweet that the massive investor flight was well within historical norms.

The SEC further alleged that other tokens, including Binance’s BNB token, Solana (SOL), Cardano (ADA), Polygon (MATIC), Coti (COTI), and Algorand blockchains (ALGO), Filecoin network (FIL), Cosmos hub (ATOM), Sandbox platform (SAND), Axie infinity (AXS) and Decentraland (MANA) were actually securities, according to the complaint.

Most of the tokens listed by the SEC tumbled into the red after the regulator’s announcement.

Metaverse majors SAND and MANA led the declines, with SAND losing 13 percent, or $0.52, in value and MANA down 11.6 percent, or $0.45.

Shares of Binance’s BNB dropped 8 percent to $276.48, while the CoinDesk Market Index remained flat, down 0.08 percent.

At least $26 million in crypto positions were liquidated in Asia during trading, according to CoinGlass, with $16.8 million being long positions.

The total amount of liquidations in a 24-hour time span stood at $296.5 billion, as of Tuesday afternoon, with $271 million being long.