The SEC‘s lawsuit against the cryptocurrency exchange Binance could become a bellwether precedent for the industry, with the platform’s complex legal structure potentially weakening its position in court. GMT Legal managing partner Andrey Tugarin told ForkLog in a comment.
He noted that the Commission has brought 13 separate charges against Binance, including operating as an exchange, broker and clearing agency without proper registration, unregistered offers and sale of crypto assets, unrestricted access of U.S. citizens to trading, misleading investors, and others.
In turn, SEC Chair Gary Gensler asserts that Binance’s actions demonstrated deliberate evasion of legal requirements.
“The charges are numerous and very serious, and the Commission is known for bold precedents, and this could indeed become a bellwether for the entire crypto industry. The regulator has certainly prepared very well for this dispute,” says the lawyer.
It is too early to speak of Binance’s readiness for trial, but its position could be significantly weakened by the platform’s complex corporate structure.
“It is a group of companies located in various jurisdictions around the world, which provides potential tax advantages and operational flexibility. At the same time, such a structure complicates regulatory oversight and raises questions about legal responsibility, especially in relation to Binance.US,” explains Tugarin.
The expert stressed that Binance.US is not a separate legal entity, but is operated by BAM Trading Services Inc., which is registered in the United States and has a partnership with Binance. This is stated, in particular, in a separate lawsuit CFTC.
“This group of companies and affiliates has many internal conflicts of interest, which is also noted by state authorities in their lawsuits against Binance,” adds the lawyer.
The tangled corporate structure seriously reduces the transparency of financial flows within the group.
“For example, it is not exactly known how much and in what way each company earns money, from what activity profits come, whether there has been in the past mixing of investors’ assets and the company,” muses Tugarin.
According to him, in court Binance will have to convincingly disclose and prove its transparency and compliance with the law, “which the exchange has always prided itself on and mentioned in its press releases.”
“If it fails to do so, then serious fines will follow with possible closures of the companies, or at least suspension of their activities at least in the United States. For users in other countries this will likely have less impact, but for American clients the ability to operate on the exchange may be completely closed,” says the expert.
Since the start of the year, Binance has come under close scrutiny from nearly all key U.S. regulatory bodies — the CFTC, the U.S. Department of Justice and now the SEC. Regulators converge on many questions regarding the trading platform, including potential commingling of company and user assets, sanctions evasion and other U.S. law requirements.
“Already one can assume that the SEC’s case against Binance and the exchange’s CEO Changpeng Zhao carries the most serious risks for the exchange compared with proceedings brought by other state authorities,” summarized Tugarin.
Earlier media uncovered in the SEC’s case against Binance parallels with the FTX case.