By Angus Berwick and Tom Wilson
LONDON On Monday, the U.S. Securities and Exchange Commission took aim at the most powerful man in crypto.
The SEC accused Binance founder Changpeng Zhao of operating a "web of deception," charging him and his exchange with 13 offences. These ranged from allegedly manipulating Binance's trading volumes and failing to restrict U.S. customers from its unregulated platform to commingling and diverting billions of dollars in customer funds "as they please."
The complaint further threatens Zhao's vast business empire, which for years has dominated the crypto industry. The billionaire tycoon already faces charges from the U.S. Commodity Futures Trading Commission, filed in March, and his exchange has been under investigation by the Justice Department too.
Zhao's towering ambitions are now coming up against the concerted efforts of U.S. regulators to rein in a company that they allege has grown to a colossal size by systematically evading U.S. laws.
In response to the SEC's allegations, Binance said: "We intend to defend our platform vigorously," adding that "because Binance is not a U.S. exchange, the SEC's actions are limited in reach." Binance said any allegations that user assets have been at risk "are simply wrong."
Ever since he launched Binance in Shanghai back in 2017, Zhao dreamt big. "We want to take over theentire market!" he told staff in a company chat group that year.
The 46-year-old CEO did not waver in his belief as he builtup his crypto exchange. This year, Zhao felt a major goal wasalmost within his grasp: a seat at the top table of finance.
"The idea that a five-year-old start-up could mature andoperate at the same level as a financial institution that hasbeen around for 200 years was once impossible to fathom," thebillionaire wrote in January in a review of the previous year.
"But we are nearly there today."
That dream is now looking more distant after the SEC's action.
In the review of 2022, Binance hailed its progress incomplying with regulations across the world. The exchange hadstrived through the year to strengthen client checks, it said,developing crypto's "best security and compliance team."
But according to the SEC, Zhao and Binance "consciously chose to evade" U.S. laws "in an effort to maximize their own profits." This "put their customers and investors at risk," the SEC alleged, citing a number of practices first reported by Reuters in a series of investigations into the exchange published this year and in 2022.
"Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” SEC Chair Gary Gensler said.
The U.S. Justice Department has been investigating Binance for alleged criminal sanctions violations and money laundering, Reuters reported in December, with some prosecutorsbelieving they have sufficient evidence to charge Zhao and othertop executives. Binance said at the time it did not have anyinsight into the inner workings of the DOJ.
ZHAO 'ANSWERS TO NO ONE'
Zhao was born in China before moving to Canada in 1989 whenhe was 12, two months after China's Tiananmen Square crackdownon pro-democracy protesters, he wrote in a blog last year.
The tycoon, known by his staff and online followers by hisinitials CZ, has crisscrossed the globe in his quest forsuccess, working in Tokyo and New York before moving toShanghai, where he embraced crypto and founded Binance in 2017.
Its expansion was dramatic.
Binance became the world's biggest crypto exchange withinsix months, and now accounts for about 60% of global cryptotrading volumes, according to research firm CCData. The exchange, however, has repeatedly refused to disclose where its trading platform is located.
From the company's earliest days, Zhao kept a tight grip on Binance, as a powerful leader committed to secrecy and focused on market domination, a Reuters report last year found.
Zhao installed a tight circle of associates, many ofwhom had worked or studied in China, into top jobs. Co-founder Yi He now runs Binance's $7.5 billion venture capital arm, as well as other key departments. Zhao tasked his Chinese-born head of back office, Guangying Chen, with managing the company's finances. This included a series of accounts that Binance opened at now-defunct U.S. lender Silvergate Bank, Reuters reported last month.
In one of these accounts, held by a trading firm called Merit Peak which is controlled by Zhao, Binance mixed customer funds with corporate revenues and used the monies to buy the exchange's bespoke dollar-linked crypto token, Reuters found. The SEC alleged this too in its complaint.
Chen also operated bank accounts belonging to Binance's purportedly independent affiliate Binance.US, ensuring that Zhao could direct the company's expansion in the American crypto market too, Reuters reported on Monday.
While Binance has hired widely from the traditionalfinancial and regulatory worlds in recent years, Zhao's tightcontrol over his company has continued. The company, which calls itself an "ecosystem," has set up at least 70 entities, most controlled by Zhao personally.
"Zhao answers to no one but himself," the CFTC said in its March complaint.
(Reporting by Angus Berwick and Tom Wilson in London; Editing by Pravin Char and Matthew Lewis)
