Summer for Binance began with a lawsuit from the U.S. Securities and Exchange Commission (SEC), and autumn ended with a $4.3 billion fine and the departure of founder Changpeng Zhao (CZ) from the role of chief executive. ForkLog looked back at the difficult six months for the crypto exchange and highlighted the key events.
June
On June 5, the SEC filed a lawsuit against Binance and CZ, alleging 13 counts, including unregistered offers and sales of tokens BNB and BUSD, the Simple Earn and BNB Vault products and staking.
The commission contends that the company failed to register its Binance.com platform as an exchange, broker-dealer, or clearing agency, as did its American subsidiary — Binance.US.
In addition, the SEC classified the tokens SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO and AXS as securities.
According to the complaint, Zhao and his company allegedly controlled client assets, commingled and redirected them “at their discretion”. The top executive could also “secretly control” the U.S. subsidiary.
The regulator sought a permanent injunction against further operations for Binance and CZ, disgorgement of ill-gotten gains with interest, and financial penalties.
Representatives of the exchange expressed disappointment about the SEC’s decision and said they were prepared to vigorously defend themselves. The media reported similarities between Binance’s case and the suit against the failed crypto exchange FTX and its affiliate Alameda Research.
On June 8, the American platform removed 10 trading pairs tied to Bitcoin and its own stablecoin BUSD, and also suspended over-the-counter trading.
On June 9, Binance.US announced the suspension of dollar deposits at the regulator’s request and urged customers to urgently withdraw fiat funds.
Massive selling on the platform generated a discount on Bitcoin and other assets. Bitcoin, paired with the U.S. dollar, traded at more than a 7% discount to its value in USDT. The market depth for the 25 leading cryptocurrencies on Binance.US fell by 78%.
The court ordered the parties to reach a compromise to safeguard client assets while allowing the platform to continue operating.
On June 17, the regulator reached a settlement with Binance.US to restrict the parent platform’s staff access to the funds of the U.S. subsidiary.
After the court’s approval, the SEC’s motion to freeze assets was withdrawn. As part of the agreements, the platform provided the agency with information about its operating expenses.
Binance.US representatives unfroze withdrawals, but warned of the risk of a recurrence in the near future. The platform also announced delistings of cryptocurrencies paired with the U.S. dollar, with exceptions for BTC, ETH, ADA, BNB, LTC, MATIC, SOL, VET, USDC and USDT.
Against the backdrop of the U.S. investigations, the exchange began facing problems in other jurisdictions, including Cyprus, the Netherlands, France, the United Kingdom, Brazil, Belgium, Austria, Germany, Nigeria and Australia.
July
On July 6, Fortune reported that Binance had parted ways with Patrick Hillmann, the director of strategy, the senior vice president for regulatory compliance Steven Christie and chief counsel Han Ng amid a U.S. Department of Justice investigation.
CZ confirmed the leadership change but said the reasons cited by the press were “completely incorrect.” He attributed the turnover to ordinary staff movement.
On July 17, The Wall Street Journal reported on job cuts of over 1,000 Binance employees. Later it emerged that benefits for staff were being cut.
On July 24, WSJ published an article alleging inflated Binance.US trading volumes at launch. Journalists claimed that in 2019, during the first hour of Bitcoin’s trading on the platform, turnover exceeded $70,000.
Internal emails showed Binance used the services of external trading firms, one of which — Sigma Chain — acted as a market maker and belonged to Zhao himself.
The authors said such a situation could signal “wash trading,” making it difficult for regulators to assess the depth of the market.
August
On August 2, Semafor, citing its own sources reported that the DOJ was preparing to bring fraud charges against Binance, but was concerned about a potential user exodus.
Officials warned that the suit could trigger mass withdrawals, resulting in customers losing money and potentially spark panic in the digital asset markets.
Then prosecutors considered other options for restricting the company—such as fines and settlements or deferment or dismissal of the case.
On August 15, Binance’s U.S. subsidiary filed a motion to limit SEC requests to the Bitcoin exchange. The company stated that regulator information demands were “unduly broad” and “unreasonably burdensome.”
On August 22, WSJ reported on a DOJ investigation into Binance regarding possible violations of U.S. sanctions against Russia. In this context, the exchange’s P2P platform replaced the names of Russian banks cards “Sber” and “Tinkoff” with the “green” and “yellow” ones respectively.
The company began considering a full exit from Russia, but later described such a scenario unlikely.
Due to regulatory issues, Mastercard and Visa refused to issue crypto payment cards for Binance.
At the end of the month, the SEC filed a sealed motion as part of the suit against the exchange, containing 35 physical exhibits, a statement by the government’s court attorney, and a proposed injunction.
In addition, Binance announced it would discontinue support for its own stablecoin BUSD in 2024. The decision followed an investigation by the New York State Department of Financial Services (NYDFS) into the coin issuer Paxos and the subsequent order to stop its production.
September
On September 1, CZ stated that despite extensive regulator checks, the exchange had proven its reliability, maintaining a large user base and a substantial market share.
On September 6, the company saw the departure of top executives overseeing the Russia direction — the head of Eastern Europe Gleb Kostarev and the head of the CIS Vladimir Smerkis. Zhao attributed the departures to staff moving to higher positions or new projects.
On September 12, it emerged that Binance.US CEO Brian Schroder had resigned. His departure occurred alongside the dismissal of another 100 employees of the U.S. subsidiary.
Subsequently, the head of the legal department Krishna Juvvadi and the head of risk Sydney Majali left the company.
On September 14, the SEC charged Binance.US with unwillingness to cooperate in disclosure of information. The agency said that the holding company BAM was delaying the preparation of the requested documents.
The court refused to order the exchange to provide expanded information regarding client asset handling and urged the parties to work together.
On September 22, Binance, Binance.US and CZ filed motions to dismiss the Commission’s claims, noting regulator arguments as “implausible.” One document stated that the agency had given too broad a definition of the term “investment contract.”
Kaiko analysts noted the company’s vulnerable position due to regulator pressure. If after the FTX collapse the platform processed 70% of all trades on the crypto market, by the end of September the figure had fallen to 50%.
On September 27, Binance announced its exit from Russia and the transfer of the business to CommEX.
October
October proved relatively calm on regulatory incidents for Binance. However, the platform continued to report deteriorating metrics — its spot trading share on the exchange in September fell to 34.3%. For comparison: at the start of the year the figure stood at 55.2%.
On October 17, media reports learned of the FDIC insurance withdrawal for Binance.US customers’ deposits.
According to Bloomberg’s billionaire index, CZ’s net worth had fallen by 82% — from a peak of $96.6 billion in January 2022 to $17.3 billion.
November
On November 8, the SEC said that Binance’s attempts to dismiss the agency’s suit had no legal basis, and described the demand as ‘absurd’.
On November 21, in a deal with the U.S. Department of Justice, Binance agreed to pay fines totaling $4.3 billion amid ongoing investigations by the agency and the SEC into the exchange and CZ.
The agreement envisages charges against the head of the exchange for money laundering, financial fraud and sanctions violations. Zhao agreed to step down as chief executive, admitting to the government’s alleged violations. He personally must pay a $50 million fine.
Under the agreement with FinCEN the crypto exchange will undertake a “full exit” from the U.S. and appoint a five-year monitor to oversee its internal sanctions-compliance program.
CZ also posted a $175 million bond to remain free. Sentencing is scheduled for February 23, 2024.
The new head of Binance will be Richard Teng, head of regional markets.
Matrixport analysts have concluded that Binance will remain among the largest crypto exchanges over the next two to three years, as settlements with U.S. authorities are viewed as a favorable outcome.