(Bloomberg) -- For any trading venue, volume is the coin of the realm. But over at Binance.US, the American exchange that operates under Binance Holdings Ltd.’s branding, that currency was being counterfeited, federal regulators alleged Monday.

From at least September 2019 until June 2022, a Swiss-incorporated trading firm owned by Binance founder Changpeng ‘CZ’ Zhao called Sigma Chain allegedly engaged in “wash trading,” making it seem like many more tokens were changing hands on Binance.US than actually were. 

That’s just one of the new details that surfaced in the Securities and Exchange Commission’s 136-page complaint accusing Binance, Zhao and its US-based affiliate BAM Trading Services Inc. of circumventing US rules by fraudulently inflating trading volume on its US platform — an exchange that is meant to operate separately from the wider Binance.com. 

Read the full complaint here.

Binance was already facing a similar lawsuit by the US Commodity Futures Trading Commission filed last month, as well as other regulatory and legal investigations worldwide. But the SEC’s 13-charge rap sheet adds new allegations. The freshest of these — that Zhao, Binance and Binance.US either conducted or permitted wash trading — are potentially also among the most damning, particularly as the crypto sector grapples with how to combat incoming global standards that would force exchanges to split off brokerage, lending or custody services under new entities.

“These sort of market manipulation tactics are all tools and mechanisms to create the appearance of a legitimate, market-induced increase in prices, when the reality is just a few grifters working amongst themselves to artificially inflate the prices of these securities,” said John Reed Stark, a former SEC enforcement attorney who now runs his own consulting firm, about wash trading. “It calls into question all of the data relating to crypto.”

The SEC also accuses Binance of illegally allowing high-profile US companies to trade on Binance.com and of commingling customer assets between its US and non-US entities, among other charges. Binance.US said the SEC’s complaint was “baseless,” while Binance.com said its efforts to reach a settlement with the watchdog were dismissed.

The world’s largest crypto exchange, which manages more daily spot volume than all other top centralized exchanges combined, has spent most of the last two years firefighting and pursuing licenses outside of the US as regulators elsewhere cracked down on its services. Between June 2018 and July 2021, the SEC estimated that Binance earned at least $11.6 billion in revenue.


In addition to allegedly soliciting US investors without the correct permissions, Binance was accused of engaging in multiple unregistered offers and sales of cryptoassets and investment schemes. US entities BAM Trading and BAM Management — of which Zhao presently owns an 81% stake — also allegedly defrauded investors about its ability to observe and counteract manipulative trading on Binance.US. In reality, the SEC said such controls were “virtually non-existent.”

As Zhao confirmed in April 2019 when commenting on a ranking of crypto asset platforms by trading volume: “CREDIBILITY is the most important asset for any exchange! If an exchange fakes their volumes, would you trust them with your funds?” 

But BAM Trading and BAM Management failed to implement controls to prevent manipulative trading on the Binance.US Platform that it falsely claimed to investors to have implemented, resulting in the exact “fake volumes” that Zhao decried in April 2019.

At Zhao’s insistence, Sigma Chain became a market maker on the Binance.US platform from the time of its launch, the SEC said, racking up dozens of user accounts to trade with. It held great influence over how the platform’s volumes fared on a daily basis, allegedly corrupting Binance.US’s reported trading volume “in a strategic pattern that coincided with at least three critical periods” for crypto and equity investors in such projects.

On June 23, 2020, for example, in discussing a drop in trading volume from market makers on the Binance.US Platform, BAM CEO A asked the BAM Trading’s Sales Director to “pull [Sigma Chain’s] data to hold them accountable too . . . they should be consistent too – we can ask for more volume but they’ve been up to 50% for us before.” On January 6, 2021, the Sales Director messaged BAM CEO A and other BAM Trading employees “fyi these are ALL sigma chain,” and then listed 20 account numbers. Another BAM Trading employee responded, “whoa.”

Zhao and BAM executives took no steps to alter Sigma Chain’s impact on the platform despite being aware of its interference, the SEC said. Sigma Chain engaged in wash trading on or around the time the launch of at least 65 new cryptoassets on Binance.US Platform, the watchdog added. Accounts owned by Sigma Chain, which received more than $200 million from other Zhao-owned entities, allegedly used $11 million of that amount to purchase a yacht.

Overall, Binance’s alleged activities date back as far as 2018, the SEC said, with Binance.US employees having felt “duped into being a puppet” under Zhao’s control.

As one part of this plan to evade United States regulatory oversight over Zhao, Binance, and the Binance.com Platform, Zhao and Binance created BAM Management and BAM Trading in the United States and claimed publicly that these entities independently controlled the operation of the Binance.US Platform. Behind the scenes, however, Zhao and Binance were intimately involved in directing BAM Trading’s U.S. business operations and providing and maintaining the crypto asset services of the Binance.US Platform. BAM Trading employees referred to Zhao’s and Binance’s control of BAM Trading’s operations as “shackles” that often prevented BAM Trading employees from understanding and freely conducting the business of running and operating the Binance.US Platform — so much so that, by November 2020, BAM Trading’s then-CEO told Binance’s CFO that her “entire team feels like [it had] been duped into being a puppet.”

Similar to claims already laid out in the CFTC’s lawsuit against Binance and Zhao, the SEC alleged that the exchange had regularly made outward representations that US investors were not allowed on Binance.com while simultaneously obscuring the tracks of its largest US customers on that venue. 


Employees inside Binance were well aware of the illegal nature of their activities and lack of appropriate registration, the SEC said. A plan devised by an external consultant in 2018 suggested that Binance establish an entity that could become the scapegoat for all forthcoming regulatory enforcement actions that would undoubtedly follow in the US, which ultimately ended in the creation of Binance.US.

Zhao and Binance understood that they were operating the Binance.com Platform in violation of numerous U.S. laws, including the federal securities laws, and that these ongoing violations presented existential risks to their business.

As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”

That firm, known as the Tai Chi entity, would eventually integrate with the main Binance parent for a nominal fee once it had served its purpose, the consultant allegedly recommended. The SEC said Binance ended up implementing most of this plan.


Several cryptocurrencies that trade on Binance’s platforms were identified by the watchdog as unregistered securities. Binance’s own tokens BUSD — issued by Paxos Trust Co. — and BNB were named in the complaint as examples of the company’s unregistered activity, as well as its interest-earning product BNB Vault and staking service Simple Earn. 

The list of tokens at hand includes Solana’s SOL, a cryptocurrency once favored by former FTX Chief Executive Sam Bankman-Fried, whose platform collapsed in November last year. Bankman-Fried is facing his own raft of charges by the SEC, CFTC and others.

Listen: Sam Bankman-Fried Tumbled From Crypto Savior to Accused Scammer

Other tokens targeted by the SEC included Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL and Algorand’s ALGO. Animoca Brands, a major web3 investor, saw two of its affiliated projects’ tokens affected in The Sandbox’s SAND and Decentraland’s MANA. The allegations that these tokens were offered and sold as securities could have wide implications for other exchanges that offer them in the US.

Even as recently as this month, the SEC said not all cryptoassets currently trading on Binance.US are under the exclusive custody and control of personnel at its US-based parent BAM Trading.

“Binance is by far the world’s largest exchange, and thus any action against it carries increased importance,” said Riyad Carey, a research analyst at crypto data firm Kaiko. “While it will take time for this complaint to play out, it is one of the most significant regulatory actions in recent years.”

--With assistance from David Pan and Yueqi Yang.

©2023 Bloomberg L.P.