In another setback for the crypto industry, the Securities and Exchange Commission (SEC) has taken legal action against two crypto entities, multiple news organizations reported.

The SEC filed charges against Binance, accusing the world’s largest cryptocurrency exchange and its founder, Changpeng Zhao, with operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance.US platform; and the unregistered offer and sale of securities, among other allegations.

The agency also charged Coinbase, the U.S.’s largest crypto platform, with violating securities law by not registering as a broker dealer. The exchange was also charged for the unregistered offer and sale of securities in connection with its staking-as-a-service program.

In its complaint against Binance, the SEC alleges that the defendants "have unlawfully solicited U.S. investors to buy, sell, and trade crypto asset securities through unregistered trading platforms available online at Binance.com ...  and Binance.US." The SEC also alleges that "while Zhao and Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform."

The SEC also alleges that alleges that "Zhao and Binance exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain," and that the defendants "concealed the fact that it was commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, that is also owned by Zhao."

The agency also alleged that Binance’s U.S. affiliate, BAM Trading and BAM Management US Holdings, Inc. “misled investors about non-existent trading controls over the Binance.US platform.” It further accused Sigma Chain, an entity owned by Zhao, of engaging “in manipulative trading that artificially inflated the platform’s trading volume.”

“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” SEC Chair Gary Gensler said in the statement. “As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

“We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the statement. “By engaging in multiple unregistered offerings and also failing to register while at the same time combining the functions of exchanges, brokers, dealers, and clearing agencies, the Binance platforms under Zhao’s control imposed outsized risks and conflicts of interest on investors. Those risks and conflicts are only heightened by the Binance platforms’ lack of transparency, reliance on related-party transactions, and lies about controls to prevent manipulative trading. Despite their years-long efforts to not ‘be held accountable,’ today’s complaint begins the process of doing so.”

In the SEC's complaint against Coinbase, it alleges that "the Coinbase Platform merges three functions that are typically separated in traditional securities markets—those of brokers, exchanges, and clearing agencies. Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets. "

The SEC also alleges that Coinbase “made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities” since at least 2019." It also alleges that “Coinbase’s failure to register has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.”

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” Gensler said in a statment. “In other parts of our securities markets, these functions are separate. Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. Further, as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”

"You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” Grewal said in a statement. "As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them. While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.”