SEC Alleges Binance Formed BAM Trading To Evade US Surveillance

Key Points:

• The SEC has accused Changpeng Zhao (CZ) of establishing BAM Trading and BAM Management in the US to avoid US scrutiny.
• The allegation that claims BAM Trading operates the Binance.US platform independently and that US customers cannot use Binance.com is untrue.
• The complaint also alleges violations of key registration-related provisions of the federal securities laws.

In the lawsuit against Binance, the SEC accused Changpeng Zhao of establishing BAM Trading and BAM Management in the United States to avoid US scrutiny of him and Binance. Also state publicly that these independent entities control the operation of the Binance US platform.

BAM Trading and BAM Management falsely claimed that Binance US controlled and raised about $200 million from private investors. Changpeng Zhao (CZ) is the CEO of Binance and the chairman of the boards of BAM Trading and BAM Management (until at least March 2022). CZ and Binance take control of BAM Trading’s bank account.

Before December 2020, BAM Trading staff needed help controlling the company’s bank accounts, including those used by customers to deposit funds into the Binance US platform. Only CZ or the manager of the Binance back office has signing authority for these accounts. Then, to avoid regulatory scrutiny, BAM Trading’s chief financial officer was appointed as one of the signatories of the client account.

As of May 2023, Changpeng Zhao still has the right to log into customers’ funds accounts on the Binance US platform. In addition, CZ also controls the daily financial spending of BAM Trading.

Before January 30, 2020, all costs of BAM Transactions over $30,000 require approval from CZ and Binance, including rent, franchise taxes, legal fees, Web Services fees Amazon (“AWS”), and even the use of $11,000 requires approval of all Binance-branded Sweatshirt purchases.

The SEC complaint further alleges that BAM Trading and BAM Management US Holdings, Inc. (“BAM Management”) misled investors about the non-existence of trading controls on the Binance.US platform, while Sigma Chain engaged in manipulative trading that increased trading on the platform’s artificial volume.

Furthermore, the lawsuit alleges that the defendants concealed that they were mixing billions of dollars of investor assets and sending them to a third party, Merit Peak Ltd., also owned by Zhao.

The complaint also alleges violations of key registration-related provisions of the federal securities laws:

• Binance and BAM Trade with unregistered national stock exchanges, broker-dealers, and clearing houses;
• Binance and BAM Trade with Binance’s unregistered offer and sale of crypto assets, including so-called exchange tokens, BNB, so-called stablecoins, Binance USD (BUSD), several products lending specific cryptocurrencies and staking as a service program;
• Zhao is the operational controller of Binance and BAM Trading for unregistered national stock exchanges, broker-dealers, and clearing agencies.

In response to these allegations, in a recent statement by the Binance CEO, the SEC’s allegations were completely untrue. Cryptocurrency exchanges will take more action to fight the lawsuit and demand more regulation for the crypto industry. This idea is getting the majority of the consensus from the community, including market player Justin Sun.

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