Binance US is reportedly under investigation by the SEC

The United States’ Securities and Exchange Commission (SEC) has reportedly begun an investigation into Binance U.S., the U.S. subsidiary of major crypto exchange, Binance, over the firm’s connection to Binance CEO and Asia’s richest man, Changpeng Zhao.

According to a report by Wall Street Journal (WSJ), the SEC is looking into the relationship between Binance.US and trading firms, Sigma Chain AG and Merit Peak. According to the report, the SEC has requested information from Binance.US on the two companies and is investigating how it may have disclosed its potential links to the market makers to users.

The WSJ explained that corporate documents from 2019 as well as former Binance executives connect Zhao to both trading firms. Sigma Chain AG and Merit Peak, acting as market makers, both buy and sell crypto on Binance.US continuously, which usually reduces price volatility.

What you should know

According to WSJ, the main concern is whether or not the trading affiliates receive preferential treatment from the exchange in terms of access or speed.

It’s unclear how the SEC might proceed with any enforcement action even if it confirmed an investigation was underway. The SEC has been bringing enforcement actions against cryptocurrency firms and so far, this number currently stands at 97 enforcement actions between 2013 and 2021. A total of $2.35 billion in penalties has been received.

A Binance spokesperson told CoinDesk in response to the report, “Market-making activities are standard in both traditional finance and crypto, such as Citadel Securities or those on FTX performed by Alameda Research, a business owned by FTX’s founder Sam Bankman-Fried. They ensure liquidity and directly support a healthy, vibrant, and efficient marketplace to the benefit of end-users.”

Not the first time Binance is under investigation

• This is not the first time the exchange is under scrutiny by regulatory bodies. In May 2021, Binance was reportedly under investigation by both the Department of Justice (DoJ) and Internal Revenue Service (IRS) in an attempt to stop U.S. residents from using crypto for illicit transactions.
• A report from March suggested that the Commodity Futures Trading Commission (CFTC) was also investigating Binance.US into whether the firm allowed unlawful derivatives trading. Binance CEO Changpeng Zhao denied any allegations of misconduct at the exchange at the time.
• In 2019, Binance was banned from operating in the United States and opened Binance.US to comply with U.S. laws. Binance’s native token, BNB now trades $431, up 1% for the day, as of the time of this writing.