- SEC accuses Binance.US of facilitating wash trading, as internal communications suggest CEO Changpeng Zhao was aware of these activities.
- Binance continues to face significant regulatory scrutiny both domestically and globally, denying the allegations fervently.
Binance.US CEO, Changpeng Zhao, Entangled in Wash Trading Accusations
Emerging from the shadows of regulatory scrutiny, Binance.US, the American branch of the globally renowned cryptocurrency exchange, finds itself in the throes of an escalating controversy. Recent allegations assert that Changpeng Zhao, the CEO of Binance, was informed about the ongoing wash trading activities on Binance.US, according to an exposé by the Wall Street Journal.
Decoding the Intricacies of Wash Trading
A malpractice prevalent in the crypto world, wash trading is a deceitful technique used to exaggerate trading volumes on an exchange. By executing simultaneous buy and sell orders internally, a deceptive image of market demand and liquidity is projected. This manipulation is strictly prohibited by law. However, it’s a reality in numerous cryptocurrency exchanges operating in a loosely regulated environment. A study published in the Management Science Journal suggested that nearly 70% of cryptocurrency trading volumes in 2019’s latter half were wash trading products.
Unraveling the Binance.US Accusations
Amid a surge of regulatory backlash, Binance.US is the primary subject of a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). Binance, two of its US affiliates, and CEO Zhao are charged with facilitating wash trading using multiple user accounts controlled by Sigma Chain, a Swiss trading entity reportedly under Zhao’s control.
In an internal message post Binance.US’s launch, Zhao cryptically hinted at potential wash trading activities, stating,
“That was ourself, I think,”
following a $70,000 trading volume spike within the platform’s initial hour. Despite the SEC not explicitly stating who might have orchestrated the wash trading, the report implicates Zhao for instructing Binance employees to manage Sigma Chain operations.
Rebuffing these allegations, Binance’s spokesperson responded,
“We staunchly believe that the SEC’s wash trading allegations are baseless, reflecting a fundamental misinterpretation of the facts and a misapplication of the relevant law.”
The Prevalence of Wash Trading in the Crypto Sphere
Wash trading isn’t an isolated issue solely plaguing Binance. Major crypto exchanges, including Coinbase, have previously faced allegations of such illicit activities. The U.S. Commodities Futures Trading Commission (CFTC) fined Coinbase $6.5 million in 2021 for inaccurate reporting and wash trading on its institutional platform.
While Binance.US grapples with these wash trading accusations, it also confronts growing regulatory pressure worldwide. Investigations in Australia led to the termination of its derivatives operations, it de-registered entities in Cyprus and the UK, exited The Netherlands, and is currently under investigation in France for illegal operations and violations of anti-money laundering laws.
