The SEC strikes again! Binance, the world’s largest crypto exchange, has found itself in hot water after the SEC launched an investigation into its 2017 initial coin offering (ICO).
The SEC is investigating whether Binance’s BNB coin was a security at the time of the ICO; if so, Binance could face steep penalties for failing to register the offering with the SEC.
Binance’s BNB Coin Under SEC Investigation
Binance Coin, which trades as BNB, was created in July 2017 during the “ICO Boom.” In this era, many crypto projects raised money by selling new coins, benefitting from a lack of specific guidance around cryptocurrency.
However, the SEC considers many of these offerings securities, which means they were required to comply with SEC law.
Binance is the latest company to come under fire from the SEC for allegedly offering unregistered securities.
Was BNB an Unregistered Security?
The SEC relies on the Howey Test to determine whether crypto coins are considered securities. Ripple Labs is currently in an ongoing legal battle with the SEC to verify whether its XRP token should be classified as a security.
The SEC has yet to comment on the current Binance investigation, but SEC chair Gary Gensler continues to ramp up efforts to regulate the cryptocurrency industry.
Mounting Legal Issues for Binance
Binance founder and CEO Changpeng “CZ” Zhao has faced relentless scrutiny for his techniques to avoid government regulation. The company has no physical headquarters and lives exclusively on the world wide web.
This investigation is the second one opened against Binance by the SEC within the past 6 months. Another investigation focuses on Zhao’s relationship with the trading firms Sigma Chain AG and Merit Peak Ltd, which operate on Binance.
The two trading firms act as market makers on the Binance platform. Market makers help reduce price fluctuations by continuing to buy and sell during a faulty market; the SEC is investigating Zhao’s ties to these companies and whether they were granted an unfair advantage by the platform in terms of access and speed.
In addition, a special investigation from Reuters alleges Binance processed $2.35 billion in illicit transactions between 2017 and 2020 after crypto hackers used the platform to hide the trail of stolen funds.
Need Help Avoiding the SEC?
As Web 3.0 creates new opportunities, those looking to innovate on the blockchain should still be mindful of SEC regulations. We highly recommend consulting with an attorney before launching your crypto project.
Our experienced team of lawyers at Gordon Law Group can guide you through SEC compliance and help you successfully get your project off the ground.