Binance’s legal troubles are set to worsen, believes John Reed Stark, former chief of the Securities and Exchange Commission (SEC) Office of Internet Enforcement. As per Stark, the U.S. Department of Justice is likely working behind the scenes to bring criminal charges against Binance and its executives.
In March, Binance and its CEO, Changpeng Zhao, faced a lawsuit by the Commodity Futures Trading Commission (CFTC). The Securities and Exchange Commission (SEC) recently filed a separate lawsuit against the exchange and Zhao.
Stark tweeted on June 12:
“Having worked in the US SEC Enforcement Division for almost 20 years and managed many US SEC-DOJ joint prosecutions, IMHO [in my honest opinion], there exist a litany of indicators that US DOJ will file, or has already filed under seal, a Binance-related criminal indictment.”
According to Stark, both the CFTC and the SEC’s lawsuits against Binance “read more like criminal indictments, replete with allegations of fraud, deception, obstruction of justice and money laundering.”
Grounds for criminal charges
Stark said the CFTC complaint alleged several criminal wrongdoings, including that Binance’s senior executives helped U.S. customers circumvent compliance control.
For instance, Binance executives told U.S. users that they could not use the exchange’s international platform solely because of their IP address, indicating that a virtual private network could help them use Binance.com, per the CFTC complaint. A Binance executive also allegedly advised users to engage in illicit activities to avoid detection.
“Like the CFTC action, the SEC also alleges that Zhao designed, implemented and engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
The more serious charges would be those related to money laundering. The SEC complaint alleged that Binance entities and Zhao comingled user funds for their own benefit. The lawsuit also alleged that Zhao used a firm to inflate Binance’s value through extensive market manipulation operations artificially.
The SEC seeks to freeze the assets of Zhao-controlled entities and wants the funds held in Zhao-controlled offshore entities to be brought back to the U.S. According to Stark:
“Seeking such emergency relief typically means that the SEC believes they can convince a judge right now, that the defendants have committed fraud and that investor funds are at risk.”
Stark added that the SEC is “obviously working” with criminal prosecutors and FBI agents, although it is yet to reveal any concrete information. Neither the CFTC nor the SEC complaint “intensely focus” on money laundering because it comes under the purview of DOJ prosecutors, he said, adding:
“My take is that U.S. DOJ is working with the SEC, CFTC and multiple informants/whistleblowers, and the next axe to fall is the filing, or unsealing of, Binance-related criminal charges.”
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